Pioneer Mid Cap Value Q2 2024 Performance And Market Commentary
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Average Annual Total Returns for Class Y Shares
|
Month-to-Date |
Quarter-to-Date |
Year-to-Date |
1-Year |
3-Year |
5-Year |
10-Year |
|
|
Pioneer Mid Cap Value (MUTF:PYCGX) |
-1.95% |
-4.28% |
2.62% |
10.03% |
5.89% |
9.14% |
6.68% |
|
Russell Midcap Value Index (Benchmark) |
-1.60% |
-3.40% |
4.54% |
11.98% |
3.65% |
8.49% |
7.60% |
|
Gross and Net expense ratio: 0.98% Call 1-800-225-6292 or visit Amundi US for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Class Y shares are not subject to sales charges and are available for limited groups of investors, including institutional investors. Initial investments are subject to a $5 million investment minimum, which may be waived in some circumstances. All results are historical and assume the reinvestment of dividends and capital gains. Periods of less than one year are actual, not annualized. Other share classes are available for which performance and expenses will differ. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers, fund performance would be lower. Waivers may not be in effect for all funds. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. |
Investment Approach
Seeks to invest in higher-quality mid-cap value stocks, with a focus on valuation. The portfolio managers employ a high-conviction investment strategy, applying a disciplined and repeatable approach to fundamental analysis that seek to identify high-quality, mid-cap value companies that are trading at attractive valuations and feature improving or stable fundamental characteristics, in complement with deeper value companies to which managers allocate assets opportunistically.
Typically, this quality-oriented investment approach results in a portfolio of 50 to 70 stocks, with the aim of limiting risk, while seeking to generate above-average total returns.
Market Review
The S&P 500 Index (SPX) returned 4.28% in the second quarter on the back of continued enthusiasm for artificial intelligence and the Magnificent Seven*. Six of the Magnificent Seven stocks (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla) outperformed in the quarter, with only Meta Platforms (META) underperforming in the SPX. Nvidia (NVDA) alone contributed more than 30% of the SPX return.
The outperformance of the Magnificent Seven caused the SPX to outpace the returns of the average stock in the quarter. The S&P 500 Equal Weighted Index, which measures the performance of all stocks equally, returned -2.63%. Growth stocks continued to outperform value stocks, with the Russell 1000 Growth Index (RLG) returning 8.33%, compared to the -2.17% return of the Russell 1000 Value Index (RLV). Year-to-date, the SPX returned 15.29%, with 31 record closing highs during the period. The strong performance of the SPX was driven by a combination of rising stock valuations as measured by price-to-earnings (P/E) multiples, along with better than expected earnings (most notably, from Nvidia). The RLG outperformed the RLV, with returns of 20.70% and 6.62% respectively, largely due to sustained enthusiasm for AI.
Performance Review
For the second quarter, mid-cap value stocks, as measured by the Portfolio’s benchmark, the RLV, underperformed the SPX, returning -1.60% versus the SPX’s 3.59%. Within this environment, the Portfolio underperformed, returning -1.95%, due to a combination of allocation effect and stock selection results. Despite the positive momentum produced from the industrials and information technology sectors, our healthcare and consumer staples drew stock selection results slightly lower for the quarter. Regarding allocation effect, our overweight to the poorly performing consumer staples sector and underweight the outperforming real estate sectors, detracted from the results.
Turning to individual holdings, positions in Zimmer Biomet (ZBH) and Walgreens Boots Alliance (WBA) were among the largest detractors. Zimmer Biomet, a medical equipment provider, provided long-range guidance during their Analyst Day that already matched analyst estimates. We believe their plan has merit and the fundamentals are improving, along with the balance sheets and the management team.
Walgreens Boots Alliance, a food and drug retailer, continued to experience pressure on its US retail business amidst a challenging consumer environment. We believe there are opportunities for better results as new management executes cost savings initiatives and seeks to optimize their portfolio.
HP Inc (HPQ), a computer hardware company, was a top attributor for the period, as the company reported signs of recovery in commercial computer demand and highlighted opportunities related to the introduction of artificial intelligence technologies in their PC and printer product segments. The company remains committed to execute on its cost savings target by end of fiscal year 2025.
Another contributor for the period was AerCap (AER), an aircraft leasing firm, that delivered strong results as it continues to benefit from a short supply of aircrafts and engines precipitated by OEM struggles. Consequently, the firm has exercised pricing power, cost and capital discipline. We think the stock remains attractive.
Top Relative Detractors and Contributors – Second Quarter 2024
|
Relative Contributors |
Average % of Portfolio |
Relative Detractors |
Average % of Portfolio |
|||
|
─ |
AerCap |
2.86% |
─ |
Zimmer Biomet |
2.92% |
|
|
─ |
Public Service Enterprise Group (PEG) |
2.60% |
─ |
GE Healthcare (GEHC) |
2.23% |
|
|
─ |
Motorola (MSI) |
2.15% |
─ |
AGCO Corporation (AGCO) |
1.80% |
|
|
─ |
HP |
1.73% |
─ |
Dentsply Sirona (XRAY) |
1.11% |
|
|
─ |
Brink’s (BCO) |
1.60% |
─ |
Walgreens Boots Alliance |
0.93% |
|
Securities listed above are holdings of the Portfolio, or benchmark components that were not held in the Portfolio, and the average percentage of the Portfolio’s invested assets they represented as of the quarterly period shown, in descending order from greatest to least, in terms of contribution to or detraction from the Portfolio’s performance relative to the benchmark. See Page 4 for more information about performance attribution. See glossary of frequently used terms for definitions. |
Top 10 Holdings (as of June 30, 2024)
|
% of Portfolio |
% of Portfolio |
|||
|
1. State Street (STT) |
3.4% |
6. Zimmer Biomet (ZBH) |
2.7% |
|
|
2. Ebay (EBAY) |
3.2% |
7. M&T Bank (MTB) |
2.6% |
|
|
3. Coterra Energy (CTRA) |
3.0% |
8. Truist Financial (TFC) |
2.6% |
|
|
4. Aercap (AER) |
2.8% |
9. Chord Energy (CHRD) |
2.5% |
|
|
5. Public Service Enterprise (PEG) |
2.7% |
|||
|
10. American Intl Group (AIG) |
2.5% |
| The portfolio is actively managed and current information is subject to change. The holdings listed should not be considered recommendations to buy or sell any security. |
Market Outlook and Positioning
There is a wide and increasing gap between the performance of the Cap Weighted Indices and the average stock (Equally Weighted Indices). A large part of this may be due to the attractive earning growth of the Magnificent Seven over the past 12 months, and most particularly year-to-date. This may in part be driven by what appears to be a slowing economy as the lagged impact of prior rate hikes takes effect despite the positive fiscal stimulus, while much of Magnificent Seven earnings growth has been driven by the AI theme and investments.
The earnings outperformance gap is expected to decline in the second half of 2024 and during 2025 as year-over-year growth rates of the Magnificent Seven decline and broader market earnings increase. If current expectations for AI related earnings suffer any setbacks, we believe Cap Weighted Indices may struggle.
Inflation has been moderating as of late, after a surprising upside earlier in the year. However, from our perspective, further progress may be slower than currently anticipated, as the stickier elements remain firm. The Federal Reserve (the Fed) may continue to delay lowering rates for longer than anticipated and disappoint the market, should it not start to ease in September. Still, the Fed could react with rate cuts if the economy weakens sooner than expected or there be some kind of negative shock, for example, an adverse geopolitical event.
While it would be unusual for the economy to fall into a recession during an election year, we believe the risk remains and potentially may occur towards the end of the year, or the beginning of 2025 – no matter how the elections unfold. We remain cautious, as elevated valuations reflect an optimistic outcome with respect to the economy, interest rates, inflation, federal debt and the elections.
Against this backdrop, we have maintained the Fund’s overweight position in the financial and energy sectors. We are also overweight in consumer staples, where we believe we have identified good value ideas. Corporate profits in our view, lead to better share-price performance for the intrinsically undervalued stocks we favor.
We remain overweight in banks with sticky deposit bases, footprints in growing geographies, and conservative underwriting cultures and believe we are buying these characteristics at attractive valuations.
Our exposure to energy takes the form of stock specific investment cases with minimal reliance upon only the price of oil. The recent capital discipline on display across energy companies, in our view, is admirable and may lead to significant value creation.
We are underweight in industrials and information technology, primarily based on valuations, which are elevated compared to the rest of the Index and historical levels.
|
*As of June 30, 2024, the Portfolio did not own Apple, Amazon, Nvidia, META Platforms, Tesla, Alphabet or Microsoft. See glossary of frequently used terms for definitions. Diversification does not assure a profit or protect against loss. See glossary of frequently used terms for definitions. Performance Attribution: Additional Information This performance attribution seeks to identify and quantify the drivers of portfolio performance relative to that of its benchmark. Using FactSet software, we create hypothetical subportfolios by segmenting the portfolio and its benchmark, then measure the value (weight) and returns of those hypothetical subportfolios. This lets us measure the performance impact of a decision to overweight or underweight a portfolio segment. It also lets us measure the performance impact of a specific security selection within each segment. The Russell Midcap Value Index measures the performance of the mid-capitalization value sectors of the US equity market. The Russell Midcap Growth Index measures the performance of the mid-capitalization growth sectors of the US equity market. The Russell 1000 Growth Index measures the performance of the large-capitalization growth sector of the US equity market. The Russell 1000 Value Index measure the performance of the large-capitalization value sectors of the US equity market. The S&P 500 Index measures the performance of the broad US stock market. Indices are unmanaged and their returns assume reinvestment of dividends and do not reflect any fees or expenses. It is not possible to invest directly in an index. Glossary of Frequently Used Terms Alpha– measures risk-adjusted performance, representing excess return relative to the return of the benchmark. A positive alpha suggests risk adjusted value added by the manager versus the index. Beta – measures an investment’s sensitivity to market movements in relation to an index. A beta of 1 indicates that the security’s price has moved with the market. A beta of less than 1 means that the security has been less volatile than the market. A beta of greater than 1 indicates that the security’s price has been more volatile than the market. Basis Point– A unit of measure used to describe the percentage change in the value or rate of a financial instrument. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form. In most cases, it refers to changes in interest rates and bond yields. Correlation– The degree to which assets or asset class prices have moved in relation to one another. Correlation ranges from -1 (always moving in opposite directions) through 0 (absolutely independent) to 1 (always moving together). Cost of Capital — Represents a calculation of the minimum return a company would need to justify a capital– budgeting project, such as building a new factory. Credit Spreads (or Spreads) – The differences in yield between two fixed-income securities with similar maturities. Dividend yield– refers to a stock’s annual dividend payments to shareholders, expressed as a percentage of the stock’s current price. Earnings Per Share (EPS) – The portion of a company’s profit allocated to each outstanding share of common stock. Price to Earnings (P/E) Ratio– The price of a stock divided by its earnings per share. Standard Deviation– A statistical measure of the historic volatility of a portfolio; a lower standard deviation indicates historically less volatility. Trailing P/E (price/earnings)– The sum of a company’s price-to-earnings, calculated by taking the current stock price and dividing it by the trailing earnings per share for the past 12 months. Wide Moat – a type of sustainable competitive advantage possessed by a business that makes it difficult for rivals to wear down its market share. Upside/Downside Capture– The ratio of the upside and downside of an investment versus a benchmark. These ratios explain how an investment typically performs in relation to a benchmark index. Yield Curve (Curve)- A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. The views expressed are those of Amundi US and are current through June 30, 2024. These views are subject to change at any time based on market or other conditions, and Amundi US disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for strategies are based on many factors, may not be relied upon as an indication of trading intent on behalf of any portfolio. A Word about Risk The market prices of securities may go up or down, sometimes rapidly or unpredictably, due to general market conditions, such as real or perceived adverse economic, political, or regulatory conditions, recessions, inflation, changes in interest or currency rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues or adverse investor sentiment. Investments in mid-sized companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. The portfolio invests in REIT securities, the value of which can fall for a variety of reasons, such as declines in rental income, fluctuating interest rates, poor property management, environmental liabilities, uninsured damage, increased competition, or changes in real estate tax laws. The market price of securities may fluctuate when interest rates change. When interest rates rise, the prices of fixed income securities in the Fund will generally fall. Conversely, when interest rates fall, the prices of fixed income securities in the Fund will generally rise. Before investing, consider the product’s investment objectives, risks, charges and expenses. Contact your financial professional or Amundi Asset Management US for a prospectus or a summary prospectus containing this information. Read it carefully. Individuals are encouraged to seek advice from their financial, legal, tax and other appropriate professionals before making any investment or financial decisions or purchasing any financial, securities or investment-related product or service, including any product or service described in these materials. Amundi US does not provide investment advice or investment recommendation.  Securities offered through Amundi Distributor US, Inc. Underwriter of Pioneer mutual funds, Member SIPC 60 State Street, Boston, Massachusetts 02109 ©2024 Amundi Asset Management US |
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