Emerging Markets Domestic Debt Strategy
Emerging Markets Domestic Debt Strategy

Emerging Markets Domestic Debt Strategy

 
 
 
Summary

The Emerging Markets Domestic Debt Strategy is a value-oriented fixed income strategy that seeks high total return from income and price appreciation by investing in a range of sovereign, quasi-sovereign and corporate debt securities in Emerging Markets. Investments are mostly denominated in Emerging Market and/or non-U.S. currencies. To help achieve its objective, the strategy combines top-down country allocation with bottom-up security selection.

 

3-4%
Expected Tracking Error
4.5-5 years
Typical Duration
5.5-6.5%
Typical Yield to Maturity
 
 
Investment Approach
Philosophy

The team believes that the growth of local currency Domestic Debt represents the next phase in development for Emerging Market economies. The team aims to capture the upside potential of Emerging Market Domestic Debt securities through: country, interest rate, currency, and security analysis.

 

 
Differentiators
Global presence

The team is supported by Morgan Stanley’s presence in nearly every major financial market and region, drawing on the scale and scope of the firm’s global franchise to help manage risks and identify opportunities throughout market cycles.

Experience and complementary skill set

The team is comprised of investment professionals with complementary skills sets, which facilitate informed, well-researched investment decisions. MSIM has managed dedicated EMD assets since 1993, with the Head of the EMD effort being involved since 1997.

Morgan Stanley Investment Management’s structure

The firm’s structure allows for entrepreneurial flexibility, equipping the investment team with the liberty to respond quickly to market developments and swiftly implement investment ideas.

 
 
 
Investment Process
1
Macro analysis

The team begins with a top-down analysis of the global macro environment, its impact on EM, and the market’s appetite for risk. The output of the analysis is an overall risk target for all of our portfolios relative to their respective benchmarks.

2
Sovereign, currency, interest rate, yield curve analysis

The team’s objective is to analyze countries' ability and willingness to pay and identify countries that exhibit positive rates of change using frameworks that meld economic, political, and social assessments. We also analyze domestic factors, such as growth and inflation, to determine if they are likely to shape the behavior of interest rate and yield curves, and exchange rates in emerging economies.  We then compare our fundamental views with the market’s to identify value opportunities, as well as to use them as a basis for simulations. Interest rate (duration) and currency investment decisions are made independently.

3
Security selection

The team’s models provide perspective on market valuations in different time periods, enabling them to identify potential mispricing and alpha opportunities. Each potential security is analyzed through a variety of valuation metrics. 

4
Portfolio construction

The team uses a Positioning & Sizing framework that takes into consideration the total return potential of investment alternatives, the volatility of returns and correlation of such potential positions to assess risk, and a conviction factor about the return/risk trade-off based on a comprehensive review of event risk (including near-term political factors) and the market technicals such as planned issuance, investors’ positioning, and outlook for asset class flows.

5
Risk management

Risk management is integrated throughout the team’s investment process. An independent team also monitors portfolio adherence to guidelines, overall risk levels, and composition.

 
 
Portfolio Managers
Managing Director
24 years industry experience
Managing Director
23 years industry experience
Executive Director
14 years industry experience
 
 
Insights
Global Fixed Income Insights
Emerging Markets: Don't Judge a Book by its Aggregates
May 21, 2018
The Emerging Markets Debt Team addresses some of economist Carmen Reinhart's recent statements as well as other popular misconceptions about emerging markets.
Macro Insight
How We’re Adapting to the Changing Markets
Aug 29, 2018
Eric Baurmeister, Head of the EMD Team, discusses the changing state of the emerging markets, opportunities he sees going forward and how his team is built to adapt to these changes.
Global Fixed Income Bulletin
The Macro Trends Which Matter
Aug 15, 2018
The Global Fixed Income team discusses that there comes a time when valuations get stretched too far and how volatility may be poised to pick up.
 
 
 
 

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