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This table below shows the correlation of the Swiss Re Global Cat Bond Index† to other asset classes during the past 10 years. It is important to note that we are using the Index (representing CAT bonds) as a proxy for the full ILS market.
Catastrophe (CAT) bonds, a subcategory of Insurance Linked Securities (ILS), have exhibited low correlations1 to multiple other asset classes since these instrument were introduced to the market more than 20 years ago. This low correlation gives them the potential to enhance diversification2, reduce volatility and strengthen the risk/return profile of an overall asset allocation portfolio.
CAT bonds are outcome-oriented investments whose performance is linked to non-financial events, such as earthquakes and hurricanes. Events such as hurricanes do not cause interest rates to rise, and stock market drops do not cause calamities such as earthquakes, giving CAT bonds a low correlation to overall market performance. As long-term investors in insurance-linked securities such as CAT bonds, we believe this fundamentally uncorrelated asset class could have a role in a diversified portfolio.
Source: Morningstar. Data based on past performance, which is no guarantee of future results. See Terms and indices below for more information.
We believe diversifying strategies in asset classes like CAT Bonds and ILS can be especially important during times of market stress, when, historically, the correlations of many asset classes have increased. The years 2020 and 2022 present important examples of the need for true diversification.
Over the past three years on an annualized basis, the Swiss Re Global Cat Bond Total Return Index delivered an uncorrelated return of 5.63% while the ICE BofA US High Yield Index and the Bloomberg US Aggregate Index delivered returns of 2.10% and -5.74%, respectively*. Data is based on past performance, which is no guarantee of future results.
To further illustrate the diversification potential of CAT bonds, the Swiss Re Global Cat Bond Total Return Index offered low correlation to other indices during the volatile first and second quarters of 2020, as well as the year 2022:
*data reflects the three-year YTD data as of 9/30/2023 | **Swiss Re Global Cat Bond Total Return Index | ***data as of 9/30/2023
Data is based on past performance, which is no guarantee of future results. Indices above represent the following asset classes: CAT Bonds (ILS), US equities, US High Yield bonds, US commodities and US investment grade/US dollar-denominated/Fixed rate taxable bond. respectively. Indices are unmanaged and their returns assume reinvestment of dividends and, unlike fund returns, do not reflect any fees or expenses. It is not possible to invest in an index. Note that the Swiss Re Global Cat Bond Index only represents catastrophe bonds and is not representative of any Fund performance.
CAT bonds also permit investors flexibility from an implementation perspective. Whether as part of a traditional fixed income portfolio or within an alternatives allocation, investors can realize value from the potential diversification benefits of CAT bonds.
As investors seek ways to increase the resiliency of their portfolios, ILS, an investment class that includes CAT bonds, can offer diversification potential with the opportunity for attractive risk-adjusted returns.
Pioneer Cat Bond Fund seeks to invest at least 80 percent of its net assets in catastrophe bonds, which are linked to weather-related events that are generally uncorrelated with financial markets.
Pioneer ILS Interval Fund invests in insurance-linked securities, including collateralized reinsurance opportunities and catastrophe bonds. The Fund seeks to be highly diversified across reinsurance peril, geographic region and security type.
Terms and Indices
1Correlation - 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).
2Diversification does not assure a profit or protect against loss.
†The Swiss Re Global Cat Bond Index is used here as a proxy for the full ILS market. It tracks the aggregate performance of all USD, EUR and JPY denominated CAT bonds, capturing all ratings, perils and triggers. The index seeks to hedge out the EUR and JPY currency risk at the inception of the bonds. Note that the index does not reflect the full ILS market because it does not include private market securities (e.g., quota shares, collateralized reinsurance, and ILWs). Furthermore, the index has a higher concentration to peak zone risks (US hurricane/earthquakes) than what is typically included in an Amundi US ILS portfolio.
CAT Bonds (ILS) represented by the Swiss Re Global Cat Bond Total Return Index, which tracks the aggregate performance of all USD, EUR and JPY denominated CAT bonds, capturing all ratings, perils and triggers. The index seeks to hedge out the EUR and JPY currency risk at the inception of the bonds. However, the index does not reflect the full ILS market because it does not include private market securities (e.g., quota shares, collateralized reinsurance, and ILW). Furthermore, the index also has a higher concentration to peak zone risks (U.S. hurricane/earthquakes) than what might typically be included in an Amundi US ILS portfolio. US Equities represented by the S&P 500 Index. Commodities represented by Bloomberg Commodity Total Return Index. US Aggregate Investment Grade Bonds represented by the Bloomberg US Aggregate Index. US High Yield Corporate Bonds represented by the ICE BofA US High Yield Index. 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.
Data represents past performance, which is no guarantee of future results. ILS is represented by the Swiss Re Global Cat Bond Index, which tracks the aggregate performance of all USD, EUR and JPY denominated CAT bonds, capturing all ratings, perils and triggers. US Stocks represented by the S&P 500 Index, a commonly used measure of the US Stock Market. High Yield Corporate Bonds represented by the ICE BofA ML US High Yield Index. 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.
Please consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other information about the Fund and should be read carefully before you invest or send money. To obtain a prospectus or summary prospectus and for other information on any Pioneer fund, call 1-844-391-3034 or download it from our literature section .
Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of 6/30/2023.
A Word about Risk: Pioneer ILS Interval Fund
Certain fees and expenses are associated with an investment in Pioneer ILS Interval Fund. The Fund is a non-diversified, closed-end management investment company designed primarily as a long-term investment. The Fund is not a complete investment program. The Fund is operated as an interval fund, meaning the Fund will seek to conduct quarterly repurchase offers for a percentage of the Fund’s outstanding shares. Although the Fund will make quarterly repurchase offers, the Fund’s shares should be considered illiquid. The Fund invests primarily in insurance-linked securities (“ILS”). ILS include event-linked bonds, quota share instruments (also known as “reinsurance sidecars”), collateralized reinsurance investments, industry loss warranties and other insurance and reinsurance-related securities. The Fund could lose a portion or all of the principal it has invested in an ILS, and the right to additional interest and/or dividend payments with respect to the security, upon the occurrence of one or more trigger events, as defined within the terms of the security. Trigger events may include natural or other perils of a specific size or magnitude that occur in a designated geographic region during a specified time period, and/or that involve losses or other metrics that exceed a specific amount. ILS may expose the Fund to other risks, including, but not limited to, issuer (credit) default, adverse regulatory or jurisdictional interpretations and adverse tax consequences. The Fund has limited transparency into the individual contracts underlying certain ILS, which may make the risk assessment of such securities more difficult. The size of the ILS market may change over time, which may limit the availability of ILS for investment. The availability of ILS in the secondary market may also be limited. ILS in which the Fund invests may have limited liquidity or may be illiquid and, therefore, may be impossible or difficult to purchase, sell, or unwind. ILS also may be difficult to value. The values of Fund holdings may go up or down, due to market conditions, inflation, changes in interest or currency rates, lack of liquidity in the financial markets or adverse investor sentiment. Investments in high yield or lower-rated securities are subject to greater-than-average price volatility, illiquidity, and possibility of default. The market price of securities may fluctuate when interest rates change. When interest rates rise, the prices of fixed income securities held by the Fund will generally fall. Conversely, when interest rates fall, the prices of fixed income securities held by the Fund will generally rise. Investments in the Fund are subject to possible loss due to the financial failure of issuers of underlying securities and their inability to meet their debt obligations. 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. The Fund may use derivatives, such as swaps, inverse floating-rate obligations and others, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on the Fund’s performance. Derivatives may have a leveraging effect. Investing in foreign and/or emerging market securities involves risks relating to interest rates, currency exchange rates, and economic and political conditions. To the extent the Fund invests a significant percentage of its assets in a single industry, such as the financial segment, the Fund may be particularly susceptible to adverse economic, regulatory or other events affecting that industry and may be more risky than a Fund that does not concentrate in an industry. As a non-diversified Fund, the Fund can invest a higher percentage of its assets in the securities of any one or more issuers than a diversified fund. Being non-diversified may magnify the Fund’s losses from adverse events affecting a particular issuer. Please see a prospectus for a complete discussion of the Fund’s risks.
Individuals are encouraged to seek advice from their financial, legal, tax and other appropriate financial 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 recommendations.
Securities offered through Amundi Distributor US, Inc.
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