Pioneer Investments believes its market neutral European Equity strategy is differentiated from competition due to a team approach to finding alpha across 13 different alpha sources.
Increased uncertainties have led some investors to seek investments that are less reliant on the direction or potential of traditional assets. In recent years, focusing on absolute returns coupled with lower volatility has become a growing area of interest for investors.
A Market Neutral Equity Strategy focuses on ‘‘alpha’’, or the ability of a manager to generate returns, while eliminating ‘’beta’’ or market returns. Long and short equity positions take advantage of both under and overpriced securities and a market neutral position (that is one without reliance on the direction of equity markets) may be achieved. The potential advantage for investors can be smoothed returns without the big swings that can characterise equity markets.
However, given the elimination of any beta, a key concern for absolute return investors is manager risk, that is the risk that a manager may potentially generate low or no returns. Pioneer Investments’ solution to circumvent this risk is to implement an approach where all team members are responsible for an independent source of return.
Fabio Di Giansante, Head of Long/Short European Equity, manages the market neutral European Equity strategy that focuses on 13 independent alpha sources. Last year, 11 of the 13 alpha sources of the strategy delivered a positive return.1 This, according to Di Giansante, highlights the key differentiating factor of Pioneer Investments approach.
“Our strategy is to build on the proven capabilities of our experienced team and not just rely on single individuals for returns. The strength of this approach is that even if some alpha sources do not produce a positive return in one year, other sources may compensate.”
Di Giansante employs an initial stock-selection approach that looks to exploit the capabilities of an experienced investments team; and secondly, multiple layers of risk management that seek to dampen volatility and minimise drawdown.
Recognising that each basis point of alpha generated is a “precious commodity”, the team works closely with Pioneer Investments’ in-house Portfolio Construction team. Headed by Ali Chabaane, this team partners with the investment teams with a focus on achieving “risk-adjusted” returns. Di Giansante believes this is a critical element of the team’s success. “Ali and his team ensure that we have allocated the correct risk budget to each member of the team and then focus efforts on managing drawdown. This process ensures we address drawdown in any alpha source quickly to stop it leaking into other areas of the portfolio. In short, it seeks to protect the returns we have already generated.”
2015 was a strong year for the strategy, with returns ahead of target. Consistency is key more importantly, and the focus on fundamentals makes this approach repeatable. “We think that our fundamental approach to long-term investment may deliver meaningful returns over the long-term,” Di Giansante says.
Since the beginning of this year, the strategy has demonstrated its resilience by delivering positive return even when the wider market suffered a volatility shock. “Volatility like this is likely to become more commonplace. -10%/+10% moves in the market are becoming the ‘new normal’” Di Giansante notes. “Our aim is to continue to generate solid returns while insulating the strategy from broader market moves.”
Disclaimer: Unless otherwise stated all information and views expressed are those of Pioneer Investments as at 1 April 2016. These views are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets or sectors will perform as expected. Pioneer Investments is a trading name of the Pioneer Global Asset Management S.p.A. group of companies.
1Pioneer Investments as at end-December 2015. Past performance does not guarantee and is not indicative of future returns.
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