Absolute Return Low Volatility Strategy
Absolute Return Low Volatility Strategy

Absolute Return Low Volatility Strategy

 
 
 
Summary

The Global Multi-Asset team's Absolute Return Low Volatility Strategy is a top-down global macro strategy that seeks to generate absolute returns and to minimize losses in down markets, and may be attractive to investors in an environment when most major asset classes have low, medium-term expected returns.  The Strategy focuses on macro and thematic investments across equities, fixed income, FX and commodities, investing in opportunities at the asset class, sector, region, country, and theme level.  The Strategy seeks to maintain a low beta to broad asset classes by taking the majority of risk in uncorrelated, hedged positions, with directional positions taken on a tactical and opportunistic basis.  The Strategy targets volatility below that of the Absolute Return Strategy.

5%
Target Annual Returns
<5%
Target Volatility
<0.35
Target Beta to Global Equities
 
 
Investment Approach
Philosophy

The Global Multi-Asset team believes that global multi-asset class investing presents opportunities to generate excess return due to structural inefficiencies such as home-country bias and the tendency for a majority of investors to focus on security selection. In addition, regions and countries have independent economic drivers, which often give rise to uncorrelated investment opportunities.  We also believe that investors have a tendency to extrapolate current trends into the future, mistaking cyclical dynamics for structural changes, and vice versa.  We therefore invest around major macro-economic turning points, where we think investors are most likely to misprice assets amid changing dynamics.

 

 
Differentiators
Thematic Approach to Multi-Asset Class Investing

We apply a global macro and thematic approach to multi-asset investing, focusing on major macroeconomic shifts and structural transformations which may give rise to asymmetric risk/ reward opportunities.

Low Correlation to Financial Markets

Majority of risk taken in uncorrelated, hedged positions, with directional positions taken on a tactical and opportunistic basis. The Strategy has the flexibility to respond quickly to changing market environments and perform well in a variety of investment climates.

Disciplined Risk Management

Multiple layers of risk management, including a stop-loss policy which seeks to mitigate downside risk, and independent risk monitoring at the firm level.

 
 
 
Investment Process

The Global Multi-Asset team offers investors access to an investment approach focusing on opportunities arising from macroeconomic changes and structural transformations that have not yet been discounted in valuations. The team’s investment process seeks to identify attractive risk/reward opportunities based on three primary criteria: valuation, fundamental dynamics, and sentiment. The team believes that these three tools are most powerful when used in combination. The team invests in opportunities at the asset class, country, sector and thematic levels, rather than concentrating on individual security selection.

 
 
Portfolio Managers
Head of Global Multi-Asset Team
26 years industry experience
Managing Director
21 years industry experience
Managing Director
34 years industry experience
 
 
Insights
Investment Insight
GMA View Point - Canada’s Housing Becoming a Drag on the Economy
Oct 31, 2017
"MSIM’s Global Multi-Asset Team discusses their investment views in the latest viewpoint: “Canada’s Housing Becoming a Drag on the Economy”.
Macro Insight
Environmental Factors
Aug 01, 2017
An entire industry’s demise was attributable to breaches of environmental standards, says Andrew Harmstone.
Macro Insight
GMA View Point - The Bull Case for Sterling
Jul 31, 2017
MSIM’s Global Multi-Asset Team discusses their investment views in the latest viewpoint: “The Bull Case for Sterling”.
 
 
 
 

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 values of securities owned by the portfolio will decline and that the value of portfolio shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in this portfolio. Please be aware that this portfolio may be subject to certain additional risks. In general, equity securities’ values also fluctuate in response to activities specific to a company. Stocks of small-and medium-capitalization companies entail special risks, such as limited product lines, markets and financial resources, and greater market volatility than securities of larger, more established companies. 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 a rising interest-rate environment, bond prices may fall. 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. Mortgage- and asset-backed securities (MBS and ABS) 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. Certain U.S. government securities purchased by the Portfolio, such as those issued by Fannie Mae and Freddie Mac, are not backed by the full faith and credit of the United States. It is possible that these issuers will not have the funds to meet their payment obligations in the future. Sovereign debt securities. The issuer or governmental authority that controls the repayment of sovereign debt may not be willing or able to repay the principal and/ or pay interest when due in accordance with the terms of such obligations. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed countries. Real estate investment trusts are subject to risks similar to those associated with the direct ownership of real estate and they are sensitive to such factors as management skills and changes in tax laws. Restricted and illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk). Exchange traded funds (ETFs) shares have many of the same risks as direct investments in common stocks or bonds and their market value will fluctuate as the value of the underlying index does. As a shareholder in an ETF, the Portfolio would bear its ratable share of that entity’s expenses while continuing to pay its own fees and expenses. As a result, the Portfolio and its shareholders will be absorbing duplicate levels of fees. Derivative instruments can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on the Portfolio’s performance. Trading in, and investment exposure to, the commodities markets may involve substantial risks and subject the Portfolio to greater volatility. Nondiversified 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.

DEFINITIONS

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Volatility is a statistical measure of the dispersion of returns for a given security or market index.

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 Bank Of America Merrill Lynch US Dollar 1-Month LIBID Average Index tracks the performance of a basket of synthetic assets paying LIBID to a stated maturity. The index purchases a new instrument each day, priced at par, having exactly its stated maturity and with a coupon equal to that day’s fixing rate. All issues are held to maturity. Each day the index is comprised of a basket of securities. The index is not marked to market. The returns represent the accrued income generated by the equally weighted average of all the coupons in the basket for a given day.

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

There is no assurance that the targets presented above will be attained.

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

 

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