Global High Yield Strategy
Global High Yield Strategy

Global High Yield Strategy

 
 
 
Summary

The Morgan Stanley Global High Yield Strategy uses an active, value-oriented approach that seeks to maximize total returns from income and price appreciation by investing in a globally diversified portfolio of debt issued by corporations and non-government issuers. The strategy has a special focus on middle market credits, which the team defines as companies with $150 million to $1 billion of total bonds outstanding. To help achieve this objective, the fund employs a bottom-up, credit-intensive approach that looks for relative-value opportunities, integrated with top-down macroeconomic analysis.

<2%
Security Weight
80-85%
Typically Invested in Middle Market Issuers
170-190
Typical Number of Holdings
 
 
Investment Approach
Philosophy

The investment team aims to take advantage of pricing inefficiencies in the market, which would potentially provide them with the opportunity to earn superior returns. The team believes that the market may misunderstand and misprice the credit quality of certain high yield issuers, and in particular their default risk. Their fundamental, value-driven approach to investing gives them the ability to identify and take advantage of these situations.

The team invests in issuers across the U.S., Europe and Asia, recognizing that the high yield universe is heavily represented by the U.S. Their strategy combines a unique approach to investing in U.S. middle market credits, with less than $1 billion total debt outstanding, with a focus on larger, higher-quality issuers in Europe and in Asia.

The team believes that by using a disciplined and diversified approach, investing in the middle market segment in the U.S. can potentially provide investors with increased yields with limited volatility throughout market cycles and less duration risk than the broader high yield market. Middle market issuers generally receive less scrutiny from market participants including credit rating agencies, underwriters and asset managers. The team believes one of the most attractive features of middle market bonds is derived from an investment manager’s ability to use diligent fundamental research to identify issuers with the strongest credit metrics and then look to benefit from the additional yield they can provide.

 
Differentiators
CUSTOMIZATION

We deliver our fixed income expertise in a customized, solutions-based approach that seeks to optimize the application of our global resources to the investment objectives of the individual client. Our team is client-centric in all aspects of the relationship.

RIGHT-SIZED

As a nimble, midsize manager with a collaborative structure based on small teams of sector specialists, we are able to confidently implement differentiated investment themes across portfolios.

EXTENSIVE RESOURCES OF A GLOBAL FIRM

Our culture of collaboration across fixed income teams in New York, London, Singapore and Tokyo enables us to take a truly global approach in identifying opportunities to capture returns in major markets worldwide.

INTENSIVE RISK MANAGEMENT

We have been investing in fixed income assets since 1975 and have developed an intensive risk management framework that includes daily monitoring to ensure compliance with guidelines and to quantify portfolio risk exposures. At the firm level, our risk management team operates independently of business functions, which we believe provides us with a critical system of checks and balances.

 
 
 
Investment Process
1
Macro Analysis:

In order to determine the optimal positioning of the high yield portfolio, the process begins with a top-down, macroeconomic value assessment of the corporate bond universe, including a consideration of macroeconomic conditions, the corporate earnings environment, relative valuations and expectations of future default rates. Sector positioning results from the team's view on the economic cycle and is intended to allow them to focus on those industry sectors that they feel should do best given where they are in the cycle. Sector rotation generally takes place as their view of the economic cycle changes. Input from the Macro and Asset Allocation teams is useful in developing their assessment of broad economic conditions.

2
Research:

The key to the portfolio management process is intensive fundamental credit research. Portfolio managers work closely with the credit analysts to generate new investment ideas and ensure continual monitoring of the credit quality of existing portfolio holdings. The team views the allocation to ratings as inherent to the fundamental credit analysis because they feel that middle market credits may have ratings that do not properly reflect their true credit quality. The team analyzes the company’s financial statements in an effort to understand whether its capital structure is suitable for the risk entailed in its business. A final key part of the analysis is to understand management’s intentions, in terms of business development and capital structure, and their ability to execute their plans.

3
Portfolio Construction:

A portfolio is constructed with sector allocation driven primarily from bottom-up security selection (subject to risk management guidelines) with focus on middle market credits in the U.S. (defined as issuers with $150 million to $1 billion of total debt outstanding) and larger high yield issuers in Europe and Asia. The team will also strive for the portfolio to be well-diversified at issuer and industry levels.

4
Portfolio Monitoring:

The team continually monitors existing holdings to verify that our clients consistently benefit from our best investment ideas. The credit research teams have regular daily and weekly meetings in which opinions and ideas from all members are debated to ensure that portfolios reflect their best ideas. In addition to these formal meetings, there is constant daily dialogue. Internal debate is a key feature of our investing philosophy, ensuring investment ideas are tested thoroughly. Integral to the team’s portfolio construction process is the measurement and monitoring of market risk, duration and volatility, and credit risk.

5
Risk Management:

The team views risk management as an integral part of our investment process. Based on this belief, they seek to protect their portfolios from a variety of risks through diversification, credit risk protection and liquidity. The goal is to ensure that portfolios are well balanced and that no single risk dominates the portfolio. In addition to powerful modelling systems with in-depth analysis to manage risks, the team uses a variety of controls to manage and monitor risks in clients' portfolios. Additionally, we are able to code the investment guidelines into the Blackrock Aladdin system for each portfolio we manage. This helps ensure that portfolios are run appropriately and that the Compliance and Risk Departments are able to monitor effectively.

 
 
Portfolio Managers
Managing Director
36 years industry experience
Managing Director
22 years industry experience
Executive Director
13 years industry experience
 
 
Insights
Global Fixed Income Insights
The Case for Middle Market High-Yield Investing
Sep 20, 2018
Richard Lindquist, Head of Global High Yield, discusses how in a world of rising interest rates, he believes middle market high-yield may be the best place to be in the bond market.
Global Fixed Income Bulletin
An October to Remember
Nov 12, 2018
October lived up to its infamous reputation for market volatility. What can we expect for the months ahead? The Global Fixed Income Team shares their views.
Global Fixed Income Bulletin
Too Much of a Good Thing?
Oct 10, 2018
The Global Fixed Income team discusses if too much recent U.S. growth is still good for the global economy.
 
 
 
 

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