U.S. Mortgage Strategy
U.S. Mortgage Strategy

U.S. Mortgage Strategy


The U.S. Mortgage Strategy seeks a high level of current income, by investing in a diversified portfolio of mortgage-related securities. To help achieve this objective, the strategy invests in mortgage-related securities such as mortgage pass-through securities, mortgage-backed securities, asset-backed-securities, collateralized mortgage obligations and commercial mortgage-backed securities.

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Investment Approach

The team employs a value-based investment philosophy. They believe that bond prices reflect market forecasts for a variety of factors, such as economic growth, inflation, credit risk and prepayment risk, but that markets tend to be poor indicators of future events, especially when the implied market forecasts are at extreme levels.

As a value manager, the team seeks to identify situations where the market’s implied forecasts are extreme, and position the strategy to capture the potential value inherent in these situations. In order to capture these opportunities, the team is strongly committed to research and a disciplined, team-based investment process.

Integrated investment approach:

The team’s investment approach integrates strong qualitative analysis with comprehensive quantitative valuation tools at every stage of the investment process, providing a robust credit management process. Investors have expertise across “consumer behavior-driven” securities, such as MBS, CMBS CMOs and ABS.

Global research:

An emphasis on a team-based approach to research and investment allows investors to benefit from the combined insight and expertise of Morgan Stanley Investment Management’s (MSIM’s) Global Fixed Income team. Approximately 80 percent of MSIM’s research is generated in-house and is supplemented by Morgan Stanley sell-side and third-party research.

Research and portfolio management:

Strategic investment decisions are made by an experienced investment team who continually conduct research to be at the forefront of fixed income analysis and are thought leaders in this field. Opinions from all members of the team are debated to ensure that portfolios reflect the team’s best ideas.

Investment Process
Top-Down review:

The team is focused on determining where the market stands at each stage of the cycle. To help accomplish this, they evaluate macroeconomic factors such as employment, inflation, corporate/consumer credit and interest rate cycle.

Sector Allocation:

Transaction prices for securities of all mortgage-related products are captured by the team’s proprietary security market pricing database. Securities are segmented by product type, weighted average life/duration and credit stability. Expected cash flows of each bond are then projected using prepayment and credit-loss models. Finally, price/yield and weighted average life/duration profiles are derived from the models for each bond to help determine whether the bond is trading on a relatively rich, cheap or fair basis.

Security Selection:

The team’s experienced portfolio managers and traders purchase securities that best fit investment targets. Based on its value identification process that incorporates rigorous analyses and modeling, the team collects and prioritizes investment opportunities. They then determine if the identified securities fit the risk, philosophy, guidelines and maturity profile of the portfolio.

Risk Management:

Proprietary risk management and attribution systems allow the team to measure and manage portfolio risk on a daily basis, and help assess the impact of key investment decisions on investment performance. The team conducts monthly credit surveillance and generates collateral reports of prepayment and credit conditions, which allows them to review positions and decide if there is a need to amend the investment thesis.

Portfolio Managers
Managing Director
26 years industry experience
Managing Director
33 years industry experience
Chief Investment Officer of Global Fixed Income
30 years industry experience
Global Fixed Income Bulletin
A Bumpy Ride
Jun 15, 2018
The Global Fixed Income team discusses how May was a schizophrenic month for financial markets, with both bouts of "risk on" and "risk off", and how they expect the high volatility to continue.
Global Fixed Income Bulletin
Ranges Are Meant to be Broken
May 11, 2018
The Global Fixed Income team discusses how we may have seen markets settle in a range in April, but that new economic data (better or worse) could force the market to change its expectations.