Global Buy and Maintain Credit Strategy
Global Buy and Maintain Credit Strategy

Global Buy and Maintain Credit Strategy

 
 
 
Summary

The Global Buy and Maintain Credit Strategy is a high-conviction, value-oriented fixed-income strategy that seeks attractive total returns from income and price appreciation by investing in a globally diversified portfolio of debt issued in several currencies by corporations and non-government issuers. To help achieve this objective, the strategy combines top-down country and sector assessment with rigorous bottom-up fundamental analysis to build a portfolio of high-conviction credit ideas unrelated to traditional corporate bond benchmark allocations.

Max 35%
Invested in Financials
Max 10%
Invested in Italy & Spain
80-120
Typical Number of Holdings
 
 
Investment Approach
Philosophy

The investment team believes that global credit markets present conditions that can be effectively exploited using a strategy with the flexibility to deviate from benchmark allocations. Owing to their composition, credit benchmarks may, over time, become skewed in favour of companies with the greatest overall debt commitments. Favouring companies and sectors with the largest outstanding debt may adversely affect the volatility of an investment portfolio, which in turn may influence the risk-adjusted returns of long term investors.


The team believes that rigorous bottom-up credit research applied within a benchmark agnostic strategy can produce a portfolio of strong credit ideas but which is designed to avoid unwanted country, sector or issuer concentrations. Given the current liquidity constrained environment, we believe long term investors in a portfolio of undervalued issuers may have the opportunity to exploit these pricing inefficiencies and earn superior returns over the long term.


The team believes that successful credit management depends on four factors:

  • A value-driven process
  • Forward-looking credit analysis
  • Broad diversification to reduce portfolio risk
  • A global approach
 
Differentiators
Customization:

The team delivers fixed income expertise in a customized, solutions-based approach that optimizes the application of the team's global resources to the investment objectives of the individual client. The team is client-centric in all aspects of the relationship.

Right-Sized:

As a mid-sized asset manager, the team has the depth and breadth of resources to provide our clients with options ranging from highly customized strategies to standardized fund options. The team benefits from a collaborative structure based on small team of sector specialists enabling the team to confidently implement investment themes across portfolios. 

Extensive Resources of a Global Firm:

Morgan Stanley Investment Management has a cohesive team of fixed income specialists in New York, London, Singapore and Tokyo who can identify opportunities to capture returns in all major markets worldwide. They bring together an impressive range of market experience, intellectual rigour and academic achievements. 

Intensive Risk Management:

At the strategy level, the team integrates daily monitoring that ensures compliance with guidelines and quantifies portfolio risk exposures.  At the firm level, the risk management team operates independently of the business functions.

 
 
 
Investment Process
1
Macro analysis:

The process begins with a top-down value assessment of the corporate bond universe, including a consideration of macroeconomic conditions, the corporate earnings environment and relative valuations. The team examines swap spreads as a proxy for the liquidity premium embedded within corporate spreads, and assesses factors such as leverage and asset volatility (which drive both equity volatility and default spreads) as an indicator of future default expectations.

2
Screening:

The team uses quantitative tools and signals to complement their fundamental research and enhance their process. An example of this is the use of Moody’s Credit Edge, an industry leading Merton-based structural model. The output offers the ability to to screen and compare credits, model events and monitor portfolio risk.

3
Credit analysis:

The team focuses on financial risk, business risk and management ability/intentions. When analysing business risk, the team assesses a company’s competitive position, its diversification and growth potential, the value of its franchise and the flexibility of its business model in terms of the variability of its cost structure. Financial risk involves an examination of a company’s financial statements to assess the suitability of the company’s capital structure for the risk entailed in its business. The team’s forward-looking proprietary cash flow models enable them to understand the likely future financial profile. The group also seeks to understand management’s intentions, in terms of business development and capital structure, and ability to execute.

4
Valuation analysis:

The team’s credit analysis narrows the universe to approximately 200 to 300 investment candidates on which a relative valuation assessment is conducted. The team derives a "fair value" spread for each bond that is compared to the market spread to determine a bond’s under/overvaluation.

5
Portfolio construction and ongoing maintenance:

A portfolio of 80 to 120 issuers is constructed, with sector allocation driven primarily by bottom-up security selection (subject to the team’s risk management guidelines). Integral to the team’s portfolio construction process is the measurement and monitoring of market risk, duration and volatility, and credit risk through the use of proprietary risk measures and proprietary models. The team monitors all credits in the portfolio in several ways: quantitative signals from proprietary models, market spread changes and regular formal and informal discussions and reviews.

 
 
Portfolio Managers
Managing Director
30 years industry experience
Executive Director
15 years industry experience
Managing Director
25 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 portfolio 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 portfolio. Please be aware that this portfolio 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. 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. The currency market is highly volatile. Prices in these markets are influenced by, among other things, changing supply and demand for a particular currency; trade; fiscal, money and domestic or foreign exchange control programs and policies; and changes in domestic and foreign interest rates.

 

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 Bloomberg arclays Global Aggregate Corporate Index is the corporate component of the Bloomberg Barclays Global Aggregate Index, which provides a broad-based measure of the global investment-grade fixed income markets. 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. 

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

 

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