Pioneer forges ahead with liquid alternative mutual funds

Strategies designed to eliminate interest rate risk or even benefit from rising rates

Feb 19, 2014 @ 2:51 pm

By Carl O'Donnell

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Pioneer Global Asset Management on Wednesday announced the creation of a suite of liquid-alternative mutual funds that promise fixed-income returns in a rising rate environment.

The company has released three funds in the U.S.: Pioneer Absolute Return Bond Fund (ABRDX)

Pioneer Long/Short Global Bond Fund (LSGAX), and Pioneer Long/Short Opportunistic Credit Fund (LRCAX).

The funds use strategies designed to eliminate interest rate risk or even benefit from rising rates. The funds promise to maintain durations that are low or negative by short-selling some bonds in the portfolio, said Todd Rosenbluth, director of ETF and mutual fund research at S&P Capital IQ.

“I think that these funds are trying to appeal to investors who don't want to lose money as rates move higher,” Mr. Rosenbluth said. “Funds with a negative duration would actually benefit from rising rates.”

S&P Capital IQ, a financial information provider, expects rates on the 10-year Treasury to increase to between 3% and 3.5% by the end of the year, Mr. Rosenbluth said. The current rate is 2.71%.

Potential investors take on the risk that rates might drop in the near term, causing low- or negative-duration bond funds to lose money or at least miss out on gains, Mr. Rosenbluth said. The funds may also take on credit risk, he added.

These are not the only funds to offer liquid alternative strategies designed to offset interest rate risk, Mr. Rosenbluth said. AllianceBernstein submitted an SEC filing for a similar fund last week, he said.

“There are an increasing number of these funds as investors pull out of traditional fixed-income funds and seek other options,” Mr. Rosenbluth said.

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