Be long but careful in 2014, says Pioneer’s Lombardo

2013 is going to end up being a very good year for investors in the so-called risky assets, says Giordano Lombardo, Group CIO for Pioneer Investments.

The S&P500 is up almost 30% as I write this, the EuroStoxx 600 is up more than 13%, the Nikkei +50% and the high yield segment of credit is returning double-digit performance, too.

It has been also a very good year in terms of returns for our clients. Most of our portfolios benefited from our long exposure to risky assets, equities in particular. Overweight positions in European and Chinese equity contributed positively in asset allocation portfolios, and a dynamic management of duration and other sources of risk helped our fixed income portfolios over-performance.

Overall, our portfolio managers and risk takers have added extra returns (“alpha”) across the board, in equity, fixed income and multi-asset portfolios, and we are particularly proud of this achievement, which is consistent with our goal of adding value to our clients’ portfolios on a multi-year time horizon. But our attention is now already focused on next year’s challenges.

Looking ahead to 2014, our main message to clients is that we remain long risky assets, equities in particular, with a caveat: our mantra is “be long, but be careful,” as I stated at a recent client conference in Paris. The reason for “being long” is that the Central Banks’ support to markets in terms of liquidity creation is not coming to an end soon.

On the other hand, we believe that the Central Banks’ “unconventional” monetary policies are becoming less and less effective, not only in affecting the real economy but also in terms of influence on asset prices. And this is the reason for “being careful.”

Monetary policies have probably reached their maximum point of impact on financial markets, and going forward we cannot rely mostly on them to guide our investment strategy.

We need to see real progress in the growth of real economies.
In this respect, we are watching closely how the big secular transitions are playing out in the main economic areas: US, Europe and China, as mentioned in previous letters.

Regarding the FED, we believe that quantitative easing (QE) will probably be “tapered” in the first quarter of 2014, but this may be already priced in to some extent. Anyway, another or more rounds of QE will probably have lower marginal effects on markets than previous rounds, as we have already seen in the case of QE3 versus QE2 and QE2 versus QE1.

Click here to read full outlook [asset_library_tag 7409,Pioneer Investments Outlook 2014]

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