Applied U.S. Core Equity Strategy
Applied U.S. Core Equity Strategy

Applied U.S. Core Equity Strategy

 
 
 
Summary

The Applied US Core Equity Strategy seeks to protect investors from prolonged periods of style-driven underperformance. Their flexible approach combines quantitative models with stock-specific research that aims to identify 30-60 companies in the U.S. with attractive valuations, above-average appreciation potential and competitive dividend yields.

≥85%
Typical Active Share
30-60
Typical Number of Holdings
 
 
Investment Approach
Philosophy

Broad market factors can drive majority of returns

By remaining flexible, we can tilt the portfolio towards styles, regions or sectors we believe have the greatest likelihood of producing excess returns.

Stock selection can be additive to alpha generation

Company-specific analysis can help generate additional contribution to portfolio's overall return.

High active share may be the key to outperformance

By limiting the number of position, we run a high active share strategy.

 
Differentiators
CAPITALIZES ON CURRENT MARKET FACTORS, UNCONSTRAINED BY STYLE

Portfolio is positioned to gain exposure to broad market factors we believe are in the early stages of outperforming and will drive returns in the current market environment.

STOCK-SPECIFIC RESEARCH ALSO ADDS VALUE

Alpha from idiosyncratic (stock-specific) risk is sought by conducting research on individual stocks, customized to each company and its specific industry.

FOCUS ON RISK MANAGEMENT

Attempt to capture common and idiosyncratic factors without unintended exposures.

 
 
 
Investment Process
1
Determined dominant

Using a trend-following proprietary factor momentum model, the team seeks to identify the style regime and common factors that they believe are driving the market, using the results to identify companies that provide desired factor exposures. 

2
Screen stocks

Stocks are ranked by their relative exposure to desired factors, which narrows the universe to the top quintile (20%) of stocks in each region.

3
Risk Decomposition

The team optimizes the weightings of the positions in the portfolio in an effort to minimize correlation between positions.  On an ongoing basis, they manage positions to ensure appropriate dependency on a single stock.

4
Conduct research

Stocks are analyzed individually, based on the idiosyncratic opportunities they offer.

5
Final Portfolio

Portfolio of high-conviction stocks is constructed. Stock weightings are determined by a stock’s exposure to desired factors, the confidence level of its idiosyncratic opportunity and its contribution to reducing intra-stock correlations within the portfolio.1

This represents how the portfolio management team generally implements its process under normal market conditions.

1The U.S. Core Equity portfolio typically has 30 – 60 positions. Weights and the number of securities provided are a typical range, not a maximum number. The portfolio may exceed this from time to time due to market conditions and outstanding trades.

 
 
Portfolio Managers
Head of Applied Equity Advisors Team
31 years industry experience
Executive Director
14 years industry experience
 
 
Insights
Investment Insight
Quantamental investing: The future is now
May 18, 2018
Applied Equity Advisors combines factor investing with stock-specific research. Tapping both sources of excess returns helps us achieve greater consistency of returns and avoid behavioral pitfalls.
Market Outlook
Andrew Slimmon – Euphoria is Not Yet on the Horizon
Oct 30, 2018
Andrew Slimmon discusses the connection between euphoria, investor psychology and secular bull market cycles.
Market Outlook
Applied Equity Advisors October 2018 Commentary
Oct 18, 2018
Andrew Slimmon, head of the Applied Equity Advisor’s team, discusses his market views in the October 2018 Monthly Commentary.
 
 
 
 

RISK CONSIDERATIONS
Diversification does not protect you against a loss in a particular market; however it allows you to spread that risk across various asset classes.

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 and may therefore be less than what you paid for them. Accordingly, you can lose money investing in this Portfolio. Please be aware that this Portfolio may be subject to certain additional risks. In general, equities securities’ values also fluctuate in response to activities specific to a company. Stocks of small-and medium-capitalizationcompanies entail special risks, such as limited product lines, markets and financial resources, and greater market volatility than securities of larger, more established companies. Investments in foreign markets entail special risks such as currency, political, economic, market and liquidity risks. Illiquid securitiesmay be more difficult to sell and value than publicly traded securities (liquidity risk). Non-diversified portfolios often invest in a more limited number of issuers. As such, changes in the financial condition or market value of a single issuer may cause greater volatility.

 

This communication is only intended for and will be only distributed to persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations.

There is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. Past performance is no guarantee of future results.

A separately managed account may not be suitable for all investors. Separate accounts managed according to the Strategy include a number of securities and will not necessarily track the performance of any index. Please consider the investment objectives, risks and fees of the Strategy carefully before investing. A minimum asset level is required. For important information about the investment manager, please refer to Form ADV Part 2.

Any views and opinions provided are those of the portfolio management team and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. Furthermore, the views will not be updated or otherwise revised to reflect information that subsequently becomes available or circumstances existing, or changes occurring. The views expressed do not reflect the opinions of all portfolio managers at Morgan Stanley Investment Management (MSIM) or the views of the firm as a whole, and may not be reflected in all the strategies and products that the Firm offers.

All information provided has been prepared solely for information 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.

DEFINITIONS
Active share is the fraction of the portfolio or fund that is invested differently than its benchmark as of the last day of the reporting period. A portfolio with a high degree of Active Share does not assure a portfolio's/fund’s relative outperformance.

OTHER CONSIDERATIONS
The indexes are unmanaged and do not include any expenses, fees or sales charges. It is not possible to invest directly in an index. Any index referred to herein is the intellectual property (including registered trademarks) of the applicable licensor. Any product based on an index is in no way sponsored, endorsed, sold or promoted by the applicable licensor and it shall not have any liability with respect thereto.

The S&P 500 Index is an index that consists of 500 stocks chosen for market size, liquidity and industry group representation. The S&P Index is a market value weighted index with each stock’s weight proportionate to its market value. The S&P Index is one of the most widely used benchmarks of U.S. equity performance. The performance of the S&P Index does not account for any management fees, incentive compensation, commissions or other expenses that would be incurred pursuing such strategy. Total return provides investors with a price-plus-gross cash dividend return. Gross cash dividends are applied on the ex-date of the dividend.

The information presented represents how the portfolio management team generally implements its investment process under normal market conditions.

The typical active share and number of holdings provided represent typical ranges and are not a maximum number. The portfolio may exceed these from time to time due to market conditions and outstanding trades.

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

 

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