PIONEER INVESTMENT MANAGEMENT USA, INC. Moderator: Christine Seaver July 24, :15 pm CT - PDF

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Page 1 Following is an edited transcript from the July 24, 2014 conference call on Pioneer High Income Trust (ticker: PHT). Investment terms are defined at the end of the transcript. PIONEER INVESTMENT
Page 1 Following is an edited transcript from the July 24, 2014 conference call on Pioneer High Income Trust (ticker: PHT). Investment terms are defined at the end of the transcript. PIONEER INVESTMENT MANAGEMENT USA, INC. July 24, :15 pm CT Operator: Please stand by. Good day everyone and welcome to the Pioneer High Income Trust conference call. Today s call is being recorded. And at this time I d like to turn the conference over to Tony Clarizio. Please go ahead sir. Tony Clarizio: Thank you Vickie. Good afternoon everyone and thanks for taking the time to join us on this conference call. Today we ll be discussing Pioneer High Income Trust which trades under the New York Stock Exchange symbol PHT. This call will include statements that contain forward-looking information. Such statements are necessarily subject to risks and uncertainties, some of which are significant in scope and by their very nature, beyond the control of the funds and their investment advisor, Pioneer Investment Management. There could be no assurance that such statements will prove to be accurate, and actual results and future events could differ in a material fashion from those anticipated in such statements. Historical results are not indicative of future performance. And now that I ve got that out of the way I would like to introduce you to our speaker today. Page 2 Andy Feltus is the Portfolio Manager of PHT. We re going to go to him for an update and we will save the Q&A until Andy has completed his remarks. So with that let me turn it over to Mr. Andy Feltus. Andy Feltus: Great. I ll make some comments on the fund and some comments on the overall market. I really don t have anything new to report. Most of what I have to say, we said during the most recent semiannual report that we mailed out. But just to reinforce what I think the important points are, I ll state those now. I think the most important thing to say today is thank you to all of you, particularly the people who take the time to actually read those reports and listen to what we have to say and really spend time understanding the investment. I think when you look at this fund; we re doing very well. And I think that is a great compliment from people who ve done the time and understand what they re investing. And I think what drives that really is the consistent yield we ve been able to deliver. I ve been running this fund now for 12 years and at no point have we cut the dividend. Of course, past performance is no guarantee of future results and there is no guarantee that the dividend will be distributed. Now some of that s been due to the market volatility, and we ve been able to position the fund to take advantage of that. So events like 2008 played well within the fund. Some of that s been due to our financing decisions. First, using the preferred shares which are gone now, but secondly to lock in a very low, longterm rate at the same time. Page 3 You know I think the caveat -- and this is what we said in the last paragraph of the most recent semiannual report -- is I don t think that can last forever. Basically when you have those times, the market volatility allows us to reinvest the fund at much higher book yields. But over time those book yields get called away from us. They mature and we have to reinvest, and that s where we find ourselves today, where high yield is at its lowest average yield that we basically have ever seen. And as we reinvest the fund we aren t getting the yields we used to. And so we have a large kitty within the fund. We have a decent earnings rate, but you know that s not forever. And particularly when we start seeing rising interest rates that will squeeze us. So at some point -- I don t want to be an alarmist and this is probably a year away; two years hopefully -- we will have to adjust down or we ll have a period of volatility which, you know, would potentially be good for this fund and the sustainability of that dividend. But you know there are some things we can do because it s a closed end fund, as far as managing the credit bets to enhance the yield potential, and that s a benefit to the closed end structure. The leverage has helped as well on that front, but you know this is not the time where we want to add leverage. This is not the time where I want to be aggressive as far as going down in credit quality. You know we want to run this prudently to deliver that high yield and that s that high yield isn t the main goal of this product. But I m not going to sell out the principal to do that. And so that s I think, the most important point that you want to know. Page 4 As far as the market is going, you know things are going very well. Default rates are now closing in on their long-term lows. We re projecting to have a default rate of about 1% this year. This is phenomenal. Now the flip side of that is the high yield market has returned back extremely good returns over the last couple of years, and that s pushed yields down to those very low levels. Spreads are a lot more contained. Spreads as of yesterday s close were 377 over. Long-term it averaged about 500, so we re definitely trading tight to that. But, you know, in the last three cycles we bought them out through 300 basis points, so there is still room for spread compression, particularly when you look at that default rate. And you know a lot of people talk about bubble these day. And you know a bubble is basically a bull market that you missed out on. So I don t really see that bubble going on in the fixed income markets. Treasury yields are - real yields are extremely low and I expect that to correct. But because of the policies of the Fed and the government, that s probably going to be a slow grind over the next couple of years. And so when I look at the incremental risk we re taking, investing in high yields or bank loans, we re not at all-time tights. And then when I look at them adjusted for the default experience, we re actually right where you would expect us to be. So as long as the markets reflect economic fundamentals, I m comfortable with them. And we continue to see good growth in the U.S. markets. Slower growth in Europe. China is slowing down although still very high, both nominal and real growth. Page 5 You know that s a great environment for our companies. The easy liquidity we see around -- and I don t expect that to last forever -- that will start -- not to coin a phrase -- tapering, particular when the Fed starts raising interest rates. But that mix of strong profits and easy money creates that low default environment. And even when you see the Fed starts raising rates and liquidity gets tighter, if the profits are being delivered, our companies will continue to perform strongly. You hear a lot of stories about how aggressive underwriting is and how aggressive leverage is. I mean yes, we ve seen some of that. At the margin, particularly in the covenant side you re not getting as strong protections as you have historically. We ve seen leverage creep up. You know that is not a good timing signal. It s a low correlation, but you haven t seen the aggressive LBO or leverage buyout activity that we saw in the past cycles. And banks are really constrained in what they can do. They want to do more. But as long as the banks are constrained on the regulatory front, you know that s Dodd-Frank; whether that s Basel III, you re really not creating time bombs. You know you are seeing some marginal deterioration, but not enough to trigger a change in the fundamentals of the market. And at the end of the day we believe fundamentals are what lead the market. If I was to see a large widening, you know I d see that as a buying opportunity for high yield. But whether I look at the high yield market or the loan market or even the emerging markets, you know prices don t look like a bubble to me. Page 6 Now in this fund, you know, we ve kept our default extremely low - knock on wood. We have a little bit of yield in that; some of that from historic buys, some of that from what we re buying now, plus leverage. I think the dividend is sustainable for now, but you know keep one eye on it to make sure you don t get burned because if rates continue to stay low, you know that will compromise our ability in time. But, you know it s stable for now. The markets, you know, are not a bubble, but don t expect great performance out of them. But all in all, you know high yield is not the worse place to be. It s just not going to be as exciting as it s been in the last couple of years. So, you know, if anyone wants to ask questions now, or discussing the Red Sox and what they should do, so we could have opinions on that. No one has ever asked me for it but, why don t we turn it over to questions Tony. Tony Clarizio: Yes. (Vicky) are there any questions that are queued up? Operator: If you have a question press the star key followed by the digit 1 on your touch-tone telephone and make sure your mute function is turned off to allow your signal to reach out equipment. Again that is star 1 for a question. We ll pause for just a moment. No one is queued up at this time but I d like to give everyone another opportunity. If you do have a question, again that is star 1. Page 7 Tony Clarizio: All right Vickie I m going to jump in here while we re waiting and ask Andy a question. Actually two questions. So how much of the fund generally is non-u.s.? Andy Feltus: We have a prospectus limitation on that that we have a maximum 25% non-u.s. That includes both developed markets as well as emerging markets. Tony Clarizio: Okay, and are you sort of in that range? Andy Feltus: Yes. Yes, we basically run at about 25% mainly because the markets have merged together. So it used to be a very U.S. centric market, but now we ve had issuers from both Europe. And emerging markets aren t part of the core. About 5% of the index is emerging markets, but it s something that we ve always invested in. And you can get some good opportunities. Actually when I look at the markets, you know Europe is as rich as it s ever been, at least compared to the U.S. Emerging market corporate yields are about in line with the long-term averages. And so you don t see that type of pricing too often. Now a lot of the emerging markets like a China or a Russia are clearly suffering through some problems, so you should get paid something extra for them. But if I just looked at markets compared to their average, you know emerging markets definitely stand out as relatively cheap. Not cheap compared to history but cheap compared to every other fixed income investment I invest in. Page 8 Tony Clarizio: So you brought up Russia, so let me just ask you on Russia, obviously a lot going on there now, and everybody is aware of it. To what extent do we have exposure either directly or maybe even indirectly in some of the names? Andy Feltus: Well indirectly it s going to be a lot harder to measure right, because Russia is a huge energy exporter. And so that affects one country, that demand on gas supplied from Russia, and that s basically everyone in Europe. Europe has a large economic exposure to Russia both through trade but, you know, a large portion of their energy comes from there. But then the secondary is like everyone is affected by energy. So anything Russia does that affects energy the market is going to affect everyone. We have direct exposure, a little bit less than 50 basis points. We bought that bond basically in 2002 when we launched it. It s a great book yield. It s actually an investment grade country; Russia is. And Russia has a lot of assets. It has a lot of money. And when we bought the bond the thesis was, you know, Putin was behaving a lot differently than he was then. He was trying to improve the rule. He was trying to create a very economic growth environment. And so that s why he proved the world law and cut taxes. It was basically at the Ronald Regan strategy of reduce inflation, cut taxes, make things better for business, and that really worked. Now over the last couple of years we ve seen a much more muscular -- and I don t mean that when he takes his shirt off -- but you know, a much more Russia that wants to project its foreign policy, and a less freedom oriented. Page 9 You know today we came along and given where prices are, we probably would not buy that Russian bond. But because of when we bought it, you know, there are no bad bonds. There s bad prices. Tony Clarizio: I like that. No bad bonds, just bad prices. Andy Feltus: Well there are bad bonds. You now I d rather buy a good bond at a good price than a bad bond at a good price. Tony Clarizio: Got you; got you. I hear you. So (Vicky) I ll turn it back to you. Anyone in the queue? Operator: No one queued up. Andy Feltus: No one cares about the Red Sox apparently. Tony Clarizio: I guess not. Well let me just say this. Following the call there will be a transcript posted of the call to our Web site, So with that let me first thank Andy Feltus for taking his time and for continuing to deliver tremendous results for this fund, thank you. And for all of you out there who called in to take the time to listen and are interested and have invested or looking at it, thank you for your attention. So with that Vickie I will turn it back to you and we ll end the call. Page 10 Operator: Thank you very much. That does conclude our conference for today. I d like to thank everyone for your participation. Have a great day. Investment terms defined: Spread is the difference between yields on differing debt instruments, calculated by deducting the yield of one instrument from another. The higher the yield spread, the greater the difference between the yields offered by each instrument. Spread compression is said to have occurred when the yield on a previously higher-yielding bond comes down due to strong demand. The portfolio is actively managed, and current holdings and allocations may be different. Please see the most current fact sheet for important information about the Fund: Pioneer Funds Distributor, Inc. Member SIPC 60 State Street, Boston, MA Pioneer Investments END
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