European Currencies High Yield Bond Strategy
European Currencies High Yield Bond Strategy

European Currencies High Yield Bond Strategy

 
 
 
Summary

The European Currencies High Yield Bond Strategy is a value-oriented fixed income strategy that seeks attractive returns through investing in a diversified portfolio of primarily high yielding fixed income securities. The team invests primarily in euro-denominated debt issued by corporations that offer a yield above that generally available on Investment-Grade debt securities. To help achieve its objective, the strategy combines a top-down macroeconomic assessment, to determine optimal beta positioning for the portfolio, with rigorous bottom-up fundamental analysis.

+/-10%
Benchmark Security Weight
<5%
Single Issuer
75-90
Typical Number of Holdings
 
 
Investment Approach
Philosophy

The investment team believes there is a broad scope for fixed income market participants to mis-value a company’s default risk, resulting in bond prices failing to reflect what, in the team’s view, is the true credit profile of a company. However, over time, the team believes that the market will recognize the high-quality of the issuer, and re-price the securities accordingly, thereby offering investors a potential opportunity for superior relative returns over the long term. 

The team believes that successful credit management depends on four factors: a value-driven process, forward looking credit analysis, careful control of overall portfolio risk through broad diversification and a global approach to investing. In the High Yield space, the team believes that securities should be evaluated for their total return over the entire market cycle, and not just yield generation. This belief often leads the team to invest in the upper tiers of the High Yield market, and even Investment Grade securities when it believes that their return potential exceeds that of lower rated securities.

 
Differentiators
Total return orientation

Rather than focusing primarily on yield generation, the team evaluates securities based on their total potential return.

Extensive Experience

Morgan Stanley Investment Management has managed high yield bond strategies, as a separate asset class, since 1989 and throughout a variety of volatile markets conditions.  

Global Resources

An emphasis on a team-based approach to investment and research, allows investors to benefit from the combined insight and expertise of the Global Fixed Income Team. These global resources enhance the team’s ability to manage high yield.

 
 
 
Investment Process
1
Macro analysis

The team begins with an assessment on the optimal beta positioning for the portfolio based on valuations and a top-down macroeconomic analysis.

2
Fundamental Screening

The team applies what they believe to be a unique combination of quantitative and qualitative filters to identify approximately 150 to 170 bond issuers that meet the team’s investment criteria in terms of competitive position, franchise value and management quality. 

3
Credit Analysis

The team conduct rigorous credit analysis that primarily focuses on financial risk, business risk and management ability/intentions. 

4
Valuation Analysis

The team’s credit analysis narrows the universe to approximately 125 investment candidates on which a relative valuation assessment is conducted. The team seeks the most undervalued securities that will provide the best risk-adjusted total return, and focus on cash-flow generation, leverage, asset values, earnings stability and management quality to determine an overall risk assessment, which is then compared to the spread at which the company’s bonds trade to determine value.

5
Portfolio Construction

A portfolio of 75 to 90 securities is constructed, with sector allocation driven primarily from bottom-up security selection (subject to our risk management guidelines).

 
 
Portfolio Managers
Managing Director
20 years industry experience
Vice President
8 years industry experience
 
 
 
 

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 mutual fund will achieve its investment objective. Funds are subject to market risk, which is the possibility that the market values of securities owned by the fund will decline and that the value of fund shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in this fund. Please be aware that this fund may be subject to certain additional risks. Fixed-income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest-rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In the current rising interest-rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. Longer-term securities may be more sensitive to interest rate changes. In a declining interest-rate environment, the portfolio may generate less income. Investments in foreign marketsentail special risks such as currency, political, economic, and market risks. The risks of investing in emerging market countries are greater than the risks generally associated with investments in foreign developed countries. In addition to the risks associated with common stocks, investments in convertible securitiesare subject to the risks associated with fixed-income securities, namely credit, price and interest-rate risks. Currency fluctuations could erase investment gains or add to investment losses. When investing in value securities, the market may not have the same value assessment as the manager, and, therefore, the performance of the securities may decline.

 

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.

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 ICE BofAML Merrill Lynch European Currency High Yield 3% Constrained Ex-Sub Financials Index: contains all non-Sub Financial securities in the ICE BofAML European Currency High Yield Index but caps issuer exposure at 3%. Index constituents are capitalization-weighted, based on their current amount outstanding, provided the total allocation to an individual issuer does not exceed 3%.

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. 

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

 

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