Today's WSJ (c7)

New Brass Putting Stamp on Pioneer High-Yield Fund
After veteran's exit, sucessors soothe jitters, set a diversification plan
Michael A. Pollock

NEW YORK (Dow Jones)--After veteran money manager Margie Patel left the $4.8-billion Pioneer High Yield Fund in March, so did about $230 million of investor money.

Investors fled amid fears that others wouldn't be able to fill Patel's shoes. Some also acted on ongoing worries that slower economic growth will hurt the high-yield market.
Now, investors are beginning to focus on plans outlined by the fund's new managers. "Things are starting to calm down," says new lead manager Andy Feltus. "I am spending less time talking about what happened and more on what we are going to do. Now I want to get to the point where we are doing it, rather than talking about it."

Pioneer Investment Management Inc., a unit of Milan-based UniCredito Italiano SpA (UC.MI), has tapped two with a strong record to succeed Patel. Another Pioneer offering managed by Feltus and co-manager Tracy Wright, the $1.8-billion Pioneer Global High Yield Fund, has ranked in the top 2% of its category for five years, according to Morningstar Inc.
That's quite a bit better than the larger High Yield Fund's five-year ranking in the top 36% of its category, although the smaller fund hasn't had as much time to prove its resilience through cycles, a Morningstar analysis notes.
Feltus stresses also that the fund previously run by Patel also still has the rest of its team intact, including several other fund managers, a trader and five analysts. He envisions some portfolio tweaking, but says Patel's approach will be preserved. "We think the strategy makes sense, so not that much is going to change," he says.
A key part that strategy was Patel's total return approach, meaning that she aimed for capital appreciation as well as yield. She did that in part by adding securities with equity characteristics, such as convertible bonds. Convertibles pay a fixed coupon but offer holders the option of converting them into common shares at a set price.
Currently, the High Yield fund has about 55% of its holdings in high-yield and about a fourth in convertibles.

Diversifying The Portfolio More

Under the new managers, the fund will become somewhat more diversified, Feltus says. While it has owned only about 20 individual high-yield securities, that number may about double, Feltus said. He also plans to add more triple-C bonds to the predominantly double-B portfolio.
Owning more securities, and some lower-rated ones, will lift returns without increasing risk, Feltus says. "If we diversify it a little more, it'll reduce the volatility of the fund and hopefully add a little yield."
Feltus also is adding other types of securities in modest amounts. These include some bank loans, or floating-rate issues that are based on loans made by banks to corporations that often have lower credit ratings.
The Pioneer managers also are buying a few "catastrophe bonds," or high-yield structured securities that pay a floating rate. Such issues are sold by insurance companies to lay off risk. Under their terms, repayment may be deferred or forgiven if an insurer is forced to cover the costs of a major storm or other catastrophic event.
Finally, Feltus expects to adjust the allocations in the fund a little more frequently than his predecessor. "We will be a little more flexible, more tactical, and use all the resources and ideas available to us," he says.
In the smaller global fund they have been managing, Feltus and Wright use a "value-oriented" strategy, which means looking for bonds that have fallen in price but seem to have good prospects to rebound. They've bought bonds of air carriers such as Continental Airlines (CAL) and Northwest Airlines (NWACQ) but also put 40% of the fund into non-U.S. markets such as South America and Eastern Europe.
Patel, who ran the Pioneer High Yield Fund from its inception in 1998, left Pioneer to manage money at Evergreen Investments, a unit of Charlotte, N.C.-based Wachovia Corp. (WB).
In a March 2006 interview, Patel talked about the benefits of managing a high-yield fund for total return.
"Typically, high-yield funds are oriented for high current income, Patel said then. But the sector's higher default rates and higher trading costs can erode what a fund earns in yield, she noted. "There is no way to add value to the fund over time to offset these losses unless you have some kind of capital appreciation component," she said.