European Champions Strategy
European Champions Strategy

European Champions Strategy

 
 
 
Summary

The European Champions Strategy is a concentrated and unconstrained strategy that invests in companies listed in developed European markets that have demonstrated a proven track record of sustainable and superior profitability; companies the team considers to be "European Champions". The strategy seeks to provide long-term outperformance by investing in European companies that have prominent and maintainable positions in their field, which can lead to greater profitability as measured by Return on Equity (ROE) and, the investment team believes, greater investment returns. To help achieve this objective, the team uses proprietary screens and rigorous fundamental analysis to construct a concentrated portfolio of 20-30 stocks.

20-30
TYPICAL NUMBER OF HOLDINGS
All Cap
MARKET CAPITALISATION
7%
MAXIMUM ABSOLUTE SECURITY WEIGHT
 
 
Investment Approach
Philosophy

The investment team believes that in order to succeed, companies should exhibit sustainable pricing power, innovation and a leading and defendable market share. The team believes that companies with these attributes should deliver superior and sustained profitability, leading to higher than average investment returns over the long-term. For a stock to meet the team’s definition of a Champion, it should have a leading market position, high barriers to entry, and the potential for superior returns and consistent cash generation.

The team believes that their style agnostic approach to investing, unconstrained by limits on country, sector or market cap exposure, enables them to focus on identifying quality companies that can deliver sustainable, long-term investment returns.

 
Differentiators
Enduring Superiority

Due to what the team believes to be the superior attributes of the companies in the portfolio, the team anticipate the strategy should be able to perform well in most market conditions.

Stable, Highly Experienced Investment Team

The team has built a successful track record of European equity investing, guided by extensive industry experience and a deep understanding of the local nuances and cultural differences within the European equity markets. European Champions is a natural extension of the team’s existing European equity offerings; the team’s experience of market cycles, sectors and stocks is applied consistently across all of their strategies.

Long-Term Capital Appreciation Potential

By investing in companies with what the team considers to be superior profitability, the team believes that the strategy can generate consistent long-term outperformance relative to the benchmark.

 
 
 
Investment Process
1
Proprietary Screening

The team screens an investment universe of around 500 stocks, using proprietary screens. The screening process assesses each company’s long-term ROCE, ROE, gross margin and cash flow history before further analysis is conducted to generate a series of quartile rankings. Companies that rank highly following this screening process are researched further.

2
Fundamental Analysis

The team uses proprietary research to conduct detailed analysis, taking into consideration each company’s:

Financials – returns, cash, ratios and performance
Growth – structural trends, innovation, demographics
Dominance – competitive positioning, market share
Products – intellectual property and its associated pricing power
Management – track record, capital allocation

The team believes that analysis of a company’s management is a critical component of the qualitative assessment. They seek out management teams with strong track records in operational and capital allocation.

3
Risk Management

Risk management is primarily considered at a stock level, with the team taking into consideration stock-specific risks such as de-rating, earnings disappointment, balance sheet risk and the risks associated with business model and industry change. Individual stocks are kept to a maximum absolute weight of 7% in order to manage stock-specific risk.

 
 
Portfolio Managers
Head of European Equity Team
24 years industry experience
Executive Director
24 years industry experience
Executive Director
21 years industry experience
Executive Director
23 years industry experience
 
 
Insights
Market Outlook
The Markets - A Review
Oct 31, 2017
Morgan Stanley’s European Equity Team discusses the independence of Catalonia, global fiscal policy and earnings.
Macro Insight
The Markets – A Review
Sep 30, 2017
Morgan Stanley’s European Equity Team discusses the current global economy and earnings expectations as year-end approaches.
Macro Insight
The Markets – A Review
Aug 31, 2017
European equity markets appear fundamentally sound, following a summer that bore witness to consolidation. Morgan Stanley’s European Equity Team explains its outlook for the coming months.
 
 
 
 

RISK CONSIDERATIONS  

Past performance is not a guarantee of future performance. The value of the investments and the income from them can go down as well as up and an investor may not get back the amount invested. There can be no assurance that the strategy will achieve its investment objectives.

There is no assurance that a strategy will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market value 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, equity securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. Geographic concentration. The portfolio is more susceptible to such risks affecting Europe, than a portfolio that does not limit its investments to such issuers. Investments in small- and medium- capitalization companies tend to be more volatile and less liquid than those of larger, more established, companies. 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.

There is no assurance that securities deemed to be "Champions" will perform as the team expects.

DEFINITIONS

Discounted cash flow is a valuation method that is used to evaluate investment potential by using future free cash flow projections and discounting them to arrive at a present value.

Free cash flow yield is a financial ratio that measures a company's operating free cash flow minus its capital expenditures per share and dividing by its price per share. Free cash flow yield ratio is calculated by using the underlying securities of the fund.

Net debt is a measure of a company's ability to repay all debt if it were called immediately. It is calculated by adding short-term and long-term debt and subtracting all cash and cash equivalents.

Return On Capital Employed (ROCE) is a ratio indicating the efficiency and profitability of a company’s capital. Calculated as: earnings before interest and taxes/total assets less current liabilities.

Return On Equity (ROE) is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

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 MSCI Europe Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. 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 performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. The information presented represents how the portfolio management team generally implements its investment process under normal market conditions.

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

The weights, tracking error typical yield duration, and the number of issuers represent 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.

CRC code: 1562767, expiry date 08/23/2017

 

It is important that users read the Terms of Use before proceeding as it explains certain legal and regulatory restrictions applicable to the dissemination of information pertaining to Morgan Stanley Investment Management's investment products.

The services described on this website may not be available in all jurisdictions or to all persons. For further details, please see our Terms of Use.

Not FDIC Insured—Offer No Bank Guarantee—May Lose Value
Not Insured By Any Federal Government Agency—Not A Deposit

Privacy & Cookies    •    Terms of Use

©  Morgan Stanley. All rights reserved.

Morgan Stanley Distribution, Inc. Member FINRA/SIPC.