Read the Morgan Stanley Investment Management Journal

In this issue of the Journal:

• Andrew Maggio from the Active International Allocation team highlights medium term challenges to U.S. fiscal stability and explores potential near-term fiscal options.
• Andrew Harmstone from the Global Asset Allocation team analyzes the Non-Parametric approach to estimating VaR, concluding that investors should explore this method more when seeking conservative risk estimates for their investments.
• Margaret Naylor and Alistair Coren-Lloyd from the International Small Cap team discuss how, when heightened volatility diminishes and the market returns to a focus on fundamentals, they believe international small caps are well placed for a rebound.
• Sheila Huang and Adam August from our U.S. Mortgage team believe that in an attempt to repair their balance sheets, financial institutions will begin to sell non-core assets, concentrated in mortgages, in the next two to three years, therefore offering an opportunity to selectively purchase attractive assets at attractive prices.
• Although the general belief is that commodities are all destined to rise over time, the Emerging Market Equity team concludes that the extraordinarily high correlation between commodities and equities is not sustainable.
• Tom Wills, portfolio manager on the Global Fixed Income team, discusses how convertible bonds, which can provide fixed income yield combined with potential upside in equity markets, are often misunderstood and under-represented in investment portfolios.
• High correlations between equity and diversified portfolios leave little room for further increases, regardless of the severity of market stress. Martin Leibowitz and Anthony Bova show that the fundamental transmission mechanism driving beta to stress levels is the portfolio volatility relative to equities, rather than the portfolio correlation itself. 
• Joseph McDonnell, CFA, Noel Langlois, CFA, and Michael Dyer, CFA from Alternative Investment Partners give an overview of considerations in successfully structuring an alternatives investment program as an institutional investor.
• Twenty years after the implosion of Japan’s “bubble economy,” Stephen S. Roach, Non-Executive Chairman of Morgan Stanley Asia, searches to understand how Japan lost its way, a discussion that has assumed even greater significance in the aftermath of the Great Financial Crisis of 2008 to 2009.

I hope you find this issue of the Journal to be thought provoking and rewarding.

To discuss the ideas presented, please contact your relationship manager or e-mail us at info@morganstanley.com.