Charting our Focus

 

Inflation Levels Highlight Potential Disconnect of Current Fed Policy

Source: Bloomberg data as of 3/15/2022. Past performance is no guarantee of future results.

   

Inflation Shows Largest Increase in 40 Years; Economy Remains Resilient

Broadening inflation pressures were again reinforced in the recent February US CPI release. At 7.9% (blue line on chart), the annual (YoY) headline inflation rate posted its largest increase in 40 years. 

Manufacturing was also strong, contributing to price pressures, another sign that high inflation could persist through much of this year. The February Institute for Supply Management’s report’s key metric, the Purchasing Managers Index (PMI), came in at 58.6 (a reading of 50 or higher indicates growth), marking the 21st consecutive month of growth.

The evolution of US Federal Reserve policy will be a key driver of 2022 investment market performance.  The Fed raised its policy rate in March, but the pace and ultimate endpoint for subsequent rate hikes remain uncertain and is dependent on the future path of US inflation.  

Signs that the Fed may act more aggressively to try and curb inflation in 2022 have emerged and may require the Fed to go beyond its neutral target rate.  The Fed may need to tighten by 150 basis points simply to bring the target rate back to the level of 1.50-1.75% (orange line on graph), where it was just prior to the pandemic in February 2020.  During Fed Chair Jerome Powell’s recent post-FOMC press conference, he notably indicated that declining asset prices would not delay near-term Fed funds target rate hikes. 

In our view, the Fed will have to raise rates higher than the market has priced in to bring inflation back down to its long-term target. We expect the US economy and credit fundamentals to show resilience despite Fed normalization, as monetary policy remains well below “restrictive” levels.  Risk asset valuations, however, will likely be more volatile. 

Opportunities to Explore     

Investors seeking fixed income options to help navigate a higher inflation, higher interest rate environment may want to consider funds with a shorter-duration focus.  Shorter-duration fixed income instruments have historically experienced less price volatility than longer duration sectors during rising rate environments.  Amundi US offers attractive fund options in this space including Pioneer Floating Rate Fund, Pioneer Multi-Asset Ultrashort Income Fund, and Pioneer Short-Term Income Fund.

Pioneer Floating Rate Fund seeks to achieve a high level of current income by investing in floating rate loans and other floating rate investments.

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Pioneer Multi-Asset Ultrashort Income Fund invests in a variety of floating rate fixed income sectors while seeking to provide diversity1, current income, and relative stability of principal.

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Pioneer Short-Term Income Fund seeks a level of current income consistent with a relatively high level of stability of principal.

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1Diversification does not assure a profit or protect against loss. 

Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of February 28, 2022.

  

A Word About Risk: 

Pioneer Floating Rate Fund: 
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. Debt securities rated below investment grade are commonly referred to as “junk bonds” and are considered speculative. Below investment grade debt securities involve greater risk of loss, are subject to greater price volatility and are less liquid, especially during periods of economic uncertainty or change, than higher rated debt securities. The Fund may invest in high yield securities of any rating, including securities that are in default at the time of purchase. Securities with floating interest rates generally are less sensitive to interest rate changes but may decline in value if their interest rates do not rise as much, or as quickly, as prevailing interest rates. Unlike fixed-rate securities, floating rate securities generally will not increase in value if interest rates decline. Changes in interest rates also will affect the amount of interest income the Fund earns on its floating rate investments. Investing in foreign and/or emerging market securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. These risks may increase share price volatility.

Pioneer Multi-Asset Ultrashort Income Fund:
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. All investments are subject to risk, including the possible loss of principal. Pioneer Multi-Asset Income (“MAI”) Fund has the ability to invest in a wide variety of securities and asset classes. Equity-linked notes (ELNs) may not perform as expected and could cause the fund to realize significant losses including its entire principal investment. Other risks include the risk of counterparty default, liquidity risk and imperfect correlation between ELNs and the underlying securities. High yield bonds possess greater price volatility, illiquidity, and possibility of default. Investments in fixed income securities involve interest rate, credit, inflation, and reinvestment risks. As interest rates rise, the value of fixed income securities falls. Prepayment risk is the chance that an issuer may exercise its right to prepay its security, if falling interest rates prompt the issuer to do so. Forced to reinvest the unanticipated proceeds at lower interest rates, the Fund would experience a decline in income and lose the opportunity for additional price appreciation. The Fund may invest in mortgage-backed securities, which during times of fluctuating interest rates may increase or decrease more than other fixed-income securities. Mortgage-backed securities are also subject to pre-payments. The Fund may invest in subordinated securities which may be disproportionately adversely affected by a default or even a perceived decline in creditworthiness of the issuer. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. The Fund may invest in inflation linked securities. As inflationary expectations increase, inflation-linked securities may become more attractive, because they protect future interest payments against inflation. Conversely, as inflationary concerns decrease, inflation-linked securities will become less attractive and less valuable. The Fund may invest in event-linked bonds. The return of principal and the payment of interest on event-linked bonds are contingent on the non-occurrence of a pre-defined “trigger” event, such as a hurricane or an earthquake of a specific magnitude. The Fund may invest in floating rate loans. The value of collateral, if any, securing a floating rate loan can decline or may be insufficient to meet the issuer’s obligations or may be difficult to liquidate. The Fund may invest in underlying funds, including ETFs. In addition to the Fund’s operating expenses, you will indirectly bear the operating expenses of investments in any underlying funds. Investments in equity securities are subject to price fluctuation. Small-and mid-cap stocks involve greater risks and volatility than large-cap stocks. The Fund may invest in Master Limited Partnerships, which are subject to increased risks of liquidity, price valuation, control, voting rights and taxation. In addition, the structure affords fewer protections to investors in the Partnership than direct investors in a corporation. The Fund may invest in zero coupon bonds and payment in kind securities, which may be more speculative and fluctuate more in value than other fixed income securities. The accrual of income from these securities are payable as taxable annual dividends to shareholders. The Fund and some of the underlying funds may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. The Fund may invest in credit default swaps, which may in some cases be illiquid, and they increase credit risk since the fund has exposure to both the issuer of the referenced obligation and the counterparty to the credit default swap. The Fund and some of the underlying funds employ leverage, which increases the volatility of investment returns and subjects the Fund to magnified losses if an underlying fund’s investments decline in value. These risks may increase share price volatility. There is no assurance that these and other strategies used by the Fund or underlying funds will be successful. Please see the prospectus for a more complete discussion of the Fund’s risks.

Pioneer Short Term Income Fund:
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. 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. 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. Prepayment risk is the chance that an issuer may exercise its right to prepay its security, if falling interest rates prompt the issuer to do so. Forced to reinvest the unanticipated proceeds at lower interest rates, the Fund would experience a decline in income and lose the opportunity for additional price appreciation. Investments in high yield or lower-rated securities are subject to greater-than-average price volatility, illiquidity and possibility of default. The securities issued by US Government-sponsored entities (e.g., FNMA, Freddie Mac) are neither guaranteed nor issued by the US government. The portfolio may invest in mortgage-backed securities, which during times of fluctuating interest rates may increase or decrease more than other fixed income securities. Mortgage-backed securities are also subject to prepayments. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic and political conditions. At times, the Fund’s investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. These risks may increase share price volatility.

   

   

The views expressed regarding market and economic trends are those of the author and not necessarily Amundi US and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product.

Investing in mutual funds involves significant risks. For complete information on the specific risks associated with each fund, please see the appropriate fund’s prospectus or fact sheet, available on our literature page.

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 recommendations.

Before investing, consider the product's investment objectives, risks, charges and expenses. Contact your financial professional or Amundi US for a prospectus or summary prospectus containing this information. Read it carefully. To obtain a free prospectus or summary prospectus and for information on any Pioneer fund, please download it from our  literature section.

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