Investment Insight
Investing Overseas with Morgan Stanley’s International Equity Team
 
 

Investment Insight

Investing Overseas with Morgan Stanley’s International Equity Team

 

William Lock, who led Morgan Stanley’s International Equity team through the 2008 financial crisis, has invested for over 25 years in overseas markets. His team’s Morgan Stanley Institutional Funds (MSIF) International Equity Portfolio, nearing the end of its third decade, has delivered shareholder returns at an annualised rate of 8.6% since 1989—nearly twice the rate of the MSCI EAFE Index.1

"Long term, it’s all about the compounding", says Lock. "$100 invested at 8.6% annualized over 28 years will grow to just over $1,000, compared to the just over $380 the MSCI EAFE Index rate of 4.8% would have given you. The key is to avoid companies with fading returns and to determine the appropriate margin of safety on a company by company basis. The goal is to deliver attractive absolute portfolio returns in rising markets, a measure of downside protection in challenging markets, and a lower volatility of returns than the MSCI EAFE Index.

 
 
 
 

A focus on price and prospects Lock continues, "We achieve this by bottom-up stock picking, investing in companies that can broadly be categorized as either Value Opportunities or High Quality Compounders. For Value Opportunity companies, we look for improving returns due to management actions and/or cyclical tailwinds, with a sufficient discount to intrinsic value to compensate for risk. Companies in the High Quality Compounder category can generally sustain their high returns on operating capital by virtue of their powerful intangible assets and pricing power, are run by management teams dedicated to preserving these returns, and can be found at intrinsic value or better. There is no top-down allocation between the two types of companies—we are stock pickers and the proportion of companies in the two categories is determined by the individual price and prospects for each company we invest in, on a bottom-up basis. Our overall investment opportunity is having a longer time horizon than the market and where appropriate, a disagreement with the market on the shape of the cycle or the size of the restructuring opportunity.

 
Head of International Equity Team
 
 
Managing Director
 
 
Executive Director
 
 

1Source: Morgan Stanley Investment Management, MSCI. Data as of 31 December 2017, MSIFT International Equity Portfolio Class I shares.

The views and opinions expressed are those of the portfolio management team at the time of writing and are subject to change at any time due to market, economic, or other conditions, and may not necessarily come to pass. These comments are not representative of the opinions and views of the firm as a whole. Holdings and sectors/region weightings are subject to change daily. All information provided is for informational purposes only and should not be deemed as a recommendation to buy or sell securities in the sectors and regions referenced.

This material is a general communication, which is not impartial and all information provided has been prepared solely for informational and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. The information herein has not been based on a consideration of any individual investor circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. To that end, investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

Risk Considerations

There is no assurance that a portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline. Accordingly, you can lose money investing in this strategy. Please be aware that this strategy may be subject to certain additional risks. In general, equities securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, market and liquidity risks. Investments in small- and medium-capitalization companies tend to be more volatile and less liquid than those of larger, more established, companies. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed markets. Derivative instruments can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on the portfolio’s performance. Illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk).

Index Definitions

The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the international equity market performance of developed markets, excluding the US & Canada. The term “free float” represents the portion of shares outstanding that are deemed to be available for purchase in the public equity markets by investors. The MSCI EAFE Index currently consists of 21 developed market country indices. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. The MSCI U.S. Index is designed to measure the performance of the large and mid-cap segments of the U.S. market. The indexes are unmanaged and do not include any expenses, fees or sales charges. It is not possible to invest directly in an index.

Please consider the investment objectives, risks, charges and expenses of the fund carefully before investing. The prospectus contains this and other information about the fund. To obtain a prospectus, contact your financial advisor or download one at morganstanley.com/im. Please read the prospectus carefully before investing.

Morgan Stanley Investment Management is the asset management division of Morgan Stanley.

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