Government Bond Strategy
Government Bond Strategy

Government Bond Strategy

 
 
 
Summary

The Government Bond Strategy is a value-oriented strategy that seeks a high level of current income consistent with safety of principal by investing in U.S. Government securities. To help achieve this objective, the strategy combines a top-down macroeconomic assessment to determine overall sector allocation and exposures, with fundamental and quantitative analysis used for portfolio construction and security selection.

 
 
Investment Approach
Philosophy

The team believes that markets can be inefficient and by performing rigorous analysis the team can position portfolios appropriately to add value over time. Bond prices reflect market forecasts for a variety of factors, such as economic growth, inflation, monetary policy, credit risk, and prepayment risk; yet markets tend to be poor forecasters of future events, especially when the implied market forecasts are out of line relative to historic trends. The team seeks to identify these mispricing’s and position client portfolios to exploit the value inherent in these opportunities. 

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

  • Global Perspective
  • Valuation
  • Diversified Holdings 
  • Deep Fundamental Research
 
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 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 them to confidently implement investment themes across portfolios. 

Extensive Resources of a Global Firm

MSIM 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 team seeks to determine what themes are driving asset prices across rates, countries and currencies and to evaluate the investment opportunity set based on a thematic investment thesis. The top-down process uses a combination of fundamental and quantitative analysis to identify and evaluate these investment opportunities.

2
Asset Allocation:

The Asset Allocation team is led by Michael Kushma, the CIO of the Global Fixed Income team and is comprised of the heads of each research group. The team seeks to first, identify areas where implied market forecasts are out of line relative to historic trends and second, to identify the catalyst for the market to adjust. Internal debate is a key feature of our investing philosophy, ensuring investment ideas are tested thoroughly. The team debates relative value across sectors and determine broad strategy targets. 

3
Research:

The team's approach to fixed income investing uses a disciplined investment process and a commitment to research. Research is conducted by dedicated teams specializing in a particular niche of the fixed income market. The research teams use in-depth fundamental analysis, complemented by quantitative tools, to generate bottom-up investment ideas and are responsible for security selection. 

4
Portfolio Construction and Risk Management:

Portfolio managers are responsible for implementing the investment strategies. They work to construct each portfolio in a way that conforms to individual client/strategy guidelines and objectives, while staying true to the broad strategy targets that are set by the Asset Allocation team. The portfolio managers achieve these targets by working with the research analysts to fill the sector buckets with bottom-up security selection ideas. 

The team views risk management as an integral part of our investment process. Based on this belief, they seek to protect their portfolios from a variety of risks through diversification, credit risk protection, and liquidity with the goal that no single risk dominates the portfolio.

5
Trading:

All fixed income trades are executed by centralized Global Fixed Income trading desk. Central dealing segregates the trading function away from the decision making process, and allows the portfolio managers to focus on managing the portfolio. This procedural separation helps ensure that all accounts are structured according to the parameters established by the team.

 
 
Portfolio Managers
Managing Director
32 years industry experience
Managing Director
25 years industry experience
Executive Director
23 years industry experience
 
 
Insights
Global Fixed Income Insights
Point of View: Government Shutdown vs. Debt Ceiling
Sep 01, 2017
Jim Caron discusses his point of view on the possible U.S. government shutdown and debt ceiling.
Macro Insight
Jim Caron on Bloomberg Radio
May 11, 2017
Jim Caron discusses his views on the current low volatility environment.
Macro Insight
Watch Jim Caron on CNBC
Dec 13, 2016
Jim Caron shares his outlook on the bond market ahead and what to watch for at the Fed Meeting.
 
 
 
 

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.

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. Mortgage- and asset-backed securities (MBS) are sensitive to early prepayment risk and a higher risk of default and may be hard to value and difficult to sell (liquidity risk). They are also subject to credit, market and interest rate risks. Some U.S. Government securities are not backed by the full faith and credit of the U.S., thus these issuers may not be able to meet their future payment obligations. Collateralized mortgage obligations (CMOs) can have unpredictable cash flows that can increase the risk of loss. Inverse floaters are sensitive to early prepayment risk and interest rate changes and are more volatile than most other fixed-income securities. Derivative instruments can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on the portfolio’s performance. Zero coupon securities are more sensitive to interest rate changes than comparable interest-paying securities. Restricted and illiquid securitiesmay be more difficult to sell and value than publicly traded securities (liquidity risk).

 

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

Duration is a measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates.

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 Barclays U.S. Government/Mortgage Index includes Treasuries, government-related issues, and agency mortgage-backed pass-through securities issued by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). 

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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