Sterling Corporate Bond Strategy
Sterling Corporate Bond Strategy

Sterling Corporate Bond Strategy

 
 
 
Summary

The Sterling Corporate Bond Strategy is a value-oriented fixed income strategy that seeks attractive total returns from income and price appreciation by investing primarily in sterling-denominated debt and non-gilt fixed income securities issued by corporations and non-government related issuers. To help achieve this objective, the strategy combines a top-down macroeconomic assessment, to determine optimal beta positioning for the portfolio, with rigorous bottom-up fundamental analysis.

 
 
Investment Approach
Philosophy

The investment team believes that market participants may often mis-value a company’s default risk, resulting in bond prices that fail to reflect the true credit profile of a company. However, the team believes that the market, over time, will re-value the bond prices of high-quality issuers based on an improving credit profile, thereby offering investors in undervalued, high-quality issuers, the opportunity to potentially 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 help reduce portfolio risk

- A global approach

 

 
Differentiators
Combined quantitative and qualitative investment approach:

The team’s investment approach integrates strong qualitative analysis with robust quantitative valuation tools at every stage of the investment process, providing a robust credit management process.

Extensive experience:

The Global Fixed Income Team at Morgan Stanley Investment Management has invested in fixed income assets since 1975, and in European fixed income assets since 1990

Global research:

The Global Fixed Income Team at Morgan Stanley Investment Management has invested in fixed income assets since 1975, and in European fixed income assets since 1990.

 
 
 
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.

2
Screening:

The team applies what they believe to be a unique combination of quantitative and qualitative filters to identify approximately 250 to 300 bond issuers that meet its investment criteria in terms of competitive position, franchise value and management quality. 

3
Credit Analysis:

The team conducts rigorous credit analysis that narrows that universe to approximately 200 investment candidates.

4
Valuation Analysis:

Using default data and average risk premia, 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:

A portfolio of 75 to 100 issuers is constructed, with sector allocation driven primarily from bottom-up security selection (subject to our risk management guidelines). 

 
 
Portfolio Managers
Managing Director
25 years industry experience
Managing Director
20 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.

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. High yield securities (“junk bonds”) are lower rated securities that may have a higher degree of credit and liquidity risk. The risks of investing in emerging market countries are greater than the risks generally associated with investments in foreign developed countries. The risks of investing in the Strategy may be intensified because the Strategy's investments may be concentrated in securities of a limited number of issuers. As a result, the performance of a particular investment or a small group of investments may affect the Strategy's performance more than it would if the Strategy held securities of a larger number of issuers. Stocks of small-capitalization companiescarry special risks, such as limited product lines, markets and financial resources, and greater market volatility than securities of larger, more established companies. The use of leverage may increase volatility in the Portfolio. Derivative instruments can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on the portfolio’s performance. 

 

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 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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