The Role of a Liquid Multi-Asset strategy in an Asset Allocation Framework

At this past Insurer Investment Forum, Jeff Galloway of Pioneer Investments provided an overview of the market outlook for the remainder of 2026 (and beyond) and how it's affecting credit investors and their perspectives on security selection and sector allocation. As a follow-up to this presentation, we spoke with Jeff again to provide a more detailed overview of how a liquid multi-asset strategy fits within an asset allocation framework.

Jeff Galloway | SVP, Portfolio Manager and Senior Credit Analyst | Pioneer Investments
jgalloway@pioneerinvestments.com | Learn More >>

SAA: For insurers that are not quite familiar with the strategy, how would you describe a liquid multi-asset strategy?

PIONEER/VCM: At its core, a liquid multi-asset strategy, like the Pioneer Multi-Asset Credit strategy, is a flexible, actively managed fixed income approach that allocates capital dynamically across the full spectrum of credit markets: investment grade corporates, high yield corporates, securitized assets like residential mortgages and asset-backed securities, bank loans, and non-U.S. sovereign debt. What makes it distinctive is that we are not anchored to any single benchmark or sector. We go where the risk-adjusted return is most compelling at any given point in the cycle.

For insurers specifically, the strategy can offer up to daily liquidity, which is an important feature as you are not locked into illiquid positions. We also keep interest rate duration deliberately low, typically in the 0–3 year range, which reduces sensitivity to rate volatility that can be particularly disruptive for insurance general accounts. The strategy has been managed with this same philosophy since its institutional inception in 2004, so there is a long, well-tested track record across multiple market cycles.

SAA: In a market where spreads are fairly tight (i.e. compensation over a risk free benchmark is narrow), how is this strategy adding value to insurers?

PIONEER/VCM: This is exactly the environment where the approach is designed to differentiate itself. When credit spreads are tight as they have been, with high yield spreads hovering around historically narrow levels entering 2026, the asymmetry of risk is unfavorable for long-only strategies. The upside from further spread compression is limited, while the downside from any credit or growth shock can be significant. Rather than simply accepting that risk, we actively hedge it. We use standardized and centrally-cleared CDX instruments to act as a proxy for the credit markets and to reduce or even net-short our aggregate credit spread exposure when we believe the market is not adequately compensating investors for the risk they are taking. At the same time, our bottom-up security selection process continues to identify individual bonds that offer genuine value through spread tightening catalysts, even within a broadly tight market. So for an insurer, the strategy can continue generating income and total return without carrying the full beta risk of a long-only credit portfolio. We are essentially trying to earn our return from skill (security selection and sector rotation) rather than from simply riding the market.

SAA: How are risks being managed in this strategy, particularly as it relates to the overall asset allocation framework?

PIONEER/VCM: Risk management is integrated at every step of our process, not treated as an afterthought. We think about two primary sources of fixed income risk: interest rate risk and credit spread risk, and we have the tools to dynamically hedge both. On the rate side, we use centrally cleared Treasury futures and interest rate swaps to keep net portfolio duration low, typically within 0–3 years. On the credit side, we use the aforementioned CDX instruments to hedge aggregate credit spread exposure, which allows us to maintain long positions in individual securities we have high conviction in while reducing the portfolio's overall sensitivity to broad market spread movements. Our sector allocation framework evaluates each segment of the market simultaneously against its own spread history, relative to other sectors of similar credit quality, against fundamental default rate outlooks, and against correlation benefits to the broader portfolio. No sector earns an allocation simply because it exists in a benchmark but rather every position must justify its place on a risk-adjusted basis. We also have an independent Risk Management team that provides ongoing oversight and compliance monitoring, separate from the investment team.

SAA: How has this strategy performed? Does this strategy measure to a specific benchmark?

PIONEER/VCM: The strategy does not manage to a traditional fixed income benchmark like the Bloomberg Aggregate or a high yield index. Our preferred reference point is 1-Month U.S. Treasury Bills plus 4–6% over a credit cycle, which reflects the strategy's absolute return orientation. Since inception in January 2005, the composite has generated an annualized gross return of approximately 6.23%, outpacing the T-bill benchmark by roughly 445 basis points. Looking at more recent periods, the 10-year annualized return through June 30, 2026 was 7.09% gross versus a 2.64% benchmark return. Year to date through Q2 2026 specifically,  a challenging quarter where 10-year Treasury yields rose above 4.50% and high yield spreads faced heightened volatility, the strategy delivered a positive return in both Q1 and Q2 totaling a 2.64% YTD, while the Bloomberg Aggregate Bond Index was down -0.05% in Q1 before recovering to a 0.62% return YTD and the Bloomberg High Yield Corporate Index with was down -0.50% in Q1 before recovering to a 1.96% return YTD.  That kind of resilience in a risk-off, rising rate environment is precisely what the strategy is designed to deliver. The strategy has also generated positive total returns in 18 out of 21 full calendar years since inception, with only two monthly drawdowns exceeding 5% in its entire history.

SAA: When it comes to the outlook for this marketplace, what economic indicators or macro events are you most paying attention to through the rest of 2026 and potentially into 2027?

PIONEER/VCM: Given the current environment and outright tight spreads, we are currently positioned higher in quality (mid to high BBB on average) relative than usual. We maintain flexibility to adjust to the extent that market dislocations create opportunity, as they often do. Several themes are front of mind as we look at the back half of 2026 and into next year.

First, the trajectory of inflation and the Federal Reserve's response - the June FOMC meeting was a pivotal moment, with Chair Warsh's inaugural meeting producing a hawkish dot plot that shifted market expectations from pricing in rate cuts to pricing in potential hikes. We are watching core CPI closely, as any re-acceleration could force the Fed's hand in a way markets are not fully prepared for.

Second, economic growth durability - we expect U.S. growth to moderate somewhat in the second half of 2026 as the tailwinds from elevated tax refunds and prior Fed cuts fade, but we still see a low 2% annualized growth environment as the base case, which is broadly supportive of credit.

Third, credit spread levels - spreads have widened from their tightest levels but remain historically compressed in many sectors, so we are maintaining a cautious posture on overall credit beta. We continue to favor higher-quality, shorter-duration securities within credit and are selectively building our non-U.S. sovereign allocation where geopolitical developments have created relative value versus U.S. Treasuries.

Finally, geopolitical risk remains a key wildcard — the situation in the Middle East has evolved, but elevated uncertainty globally continues to be a factor in how we size and hedge our exposures.

We remain watchful for market dislocations in order to utilize our flexibility to adjust the portfolio, whether it be to overall sectors, themes or individual securities, as we have done for over 20 years within this strategy.

Strategic Asset Alliance, Pioneer Investments, Victory Capital Management. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of information cannot be guaranteed. . This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for investment, accounting, legal and tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only.