Market Pulse
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März 12, 2020
MS INVF Global Asset Backed Securities Fund: Global Coronavirus Update
 

Market Pulse

MS INVF Global Asset Backed Securities Fund: Global Coronavirus Update

MS INVF Global Asset Backed Securities Fund: Global Coronavirus Update

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März 12, 2020

 
 

The U.S. Securitized Team is diligently monitoring the Coronavirus and any implications that it may have on securitized assets and is actively managing our portfolios as the story continues to develop.

Over the past year, we had been reducing risk and increasing the credit quality and liquidity of the portfolio by increasing our agency mortgage-backed securities (MBS) positioning and increasing our overall AAA-rated positioning. The average credit quality of the portfolio migrated higher, from a rating of A- at the beginning of 2019 to A+ in early 2020, as a result of this re-positioning. We believed that credit risk was not being properly priced with sufficient risk premiums, and that the credit yield curve was essentially too flat. However, these dynamics have significantly changed in the past few weeks as a result of coronavirus concerns, as credit risk and liquidity are being substantially re-priced.

 
 

We are now slowly and cautiously adding back risk to the portfolio, while keeping a watchful eye on liquidity.

  • We are concentrating our risk additions on sectors that we believe to be more resilient to the impacts of coronavirus, namely US and European residential mortgage-back securities (RMBS). Low mortgage rates, and the essential need for housing should keep these sectors well supported.
  • We are avoiding adding more troubled sectors such as Aircraft asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS) collateralized by hotels or retail shopping centers which should be more substantially impacted by the coronavirus fears.
  • We have also reduced the Fund’s duration positioning from nearly 3 years at the start of 2020 to 1.5 years currently, as we believe it is more likely for rates to move higher from current levels than to move lower.

Although the additional geopolitical and economic turbulence could increase, we believe the MS INVF Global Asset Backed Securitized Fund is well positioned to weather this volatility. With a relatively low interest rate, and spread duration, the Fund continues to generate returns primarily from the cashflow carry of the underlying bonds; and as a result, has experienced lower volatility than many other fixed income sectors during periods of large interest rate moves and credit shocks.

We are active investors with the objective to generate income and long term growth of the Fund. Our investment approach does not aim to generate returns on market-to-market gains nor to capitalize duration positioning, but rather focuses on the robust fundamentals of the Fund’s underlying securities as we continue to search for attractive risk-adjusted reward opportunities in uncertain markets.

 

 

 
 

RISK WARNING

The value of bonds are likely to decrease if interest rates rise and vice versa. The value of financial derivative instruments are highly sensitive and may result in losses in excess of the amount invested by the Sub-Fund. Issuers may not be able to repay their debts, if this happens the value of your investment will decrease. This risk is higher where the fund invests in a bond with a lower credit rating. The fund relies on other parties to fulfil certain services, investments or transactions. If these parties become insolvent, it may expose the fund to financial loss. There may be an insufficient number of buyers or sellers which may affect the funds ability to buy or sell securities. Investment in Fixed Income Securities via the China Interbank Bond Market may also entail additional risks, such as counterparty and liquidity risk. There are increased risks of investing in emerging markets as political, legal and operational systems may be less developed than in developed markets. Past performance is not a reliable indicator of future results. Returns may increase or decrease as a result of currency fluctuations. The value of investments and the income from them can go down as well as up and investors may lose all or a substantial portion of his or her investment. The value of the investments and the income from them will vary and there can be no assurance that the Fund will achieve its investment objectives. Investments may be in a variety of currencies and therefore changes in rates of exchange between currencies may cause the value of investments to decrease or increase. Furthermore, the value of investments may be adversely affected by fluctuations in exchange rates between the investor’s reference currency and the base currency of the investments.

 
 
 
The Global Fixed Income team follows a seamless process with a global outlook. They seek to identify and capture the potential value in situations where the market's implied forecasts are extreme.
 
 
 
 
 

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Ireland: Morgan Stanley Investment Management (Ireland) Limited. Registered Office: The Observatory, 7-11 Sir John Rogerson's Quay, Dublin 2, Ireland. Registered in Ireland under company number 616662. Regulated by the Central Bank of Ireland. United Kingdom: Morgan Stanley Investment Management Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No. 1981121. Registered Office: 25 Cabot Square, Canary Wharf, London E14 4QA. Dubai: Morgan Stanley Investment Management Limited (Representative Office, Unit Precinct 3-7th Floor-Unit 701 and 702, Level 7, Gate Precinct Building 3, Dubai International Financial Centre, Dubai, 506501, United Arab Emirates. Telephone: +97 (0)14 709 7158). Germany: Morgan Stanley Investment Management Limited Niederlassung Deutschland, Grosse Gallusstrasse 18, 60312 Frankfurt am Main, Germany (Gattung: Zweigniederlassung (FDI) gem. § 53b KWG). Italy: Morgan Stanley Investment Management Limited, Milan Branch (Sede Secondaria di Milano) is a branch of Morgan Stanley Investment Management Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA), and whose registered office is at 25 Cabot Square, Canary Wharf, London, E14 4QA. Morgan Stanley Investment Management Limited Milan Branch (Sede Secondaria di Milano) with seat in Palazzo Serbelloni Corso Venezia, 16 20121 Milano, Italy, is registered in Italy with company number and VAT number 08829360968. The Netherlands: Morgan Stanley Investment Management, Rembrandt Tower, 11th Floor Amstelplein 1 1096HA, Netherlands. Telephone: 31 2-0462-1300. Morgan Stanley Investment Management is a branch office of Morgan Stanley Investment Management Limited. Morgan Stanley Investment Management Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Switzerland: Morgan Stanley & Co. International plc, London, Zurich Branch, authorised and regulated by the Eidgenössische Finanzmarktaufsicht ("FINMA"). Registered with the Register of Commerce Zurich CHE-115.415.770. Registered Office: Beethovenstrasse 33, 8002 Zurich, Switzerland, Telephone +41 (0) 44 588 1000. Facsimile Fax: +41(0)44 588 1074.

IMPORTANT INFORMATION
EMEA: This marketing communication has been issued by Morgan Stanley Investment Management Limited (“MSIM Ltd”). Registered Office: 25, Cabot Square, London E14 4QA Regulated by FCA.

This table contains information relating to the sub-funds of Morgan Stanley Investment Funds, a Luxembourg domiciled Société d’Investissement à Capital Variable. Morgan Stanley Investment Funds (the “Company”) is registered in the Grand Duchy of Luxembourg as an undertaking for collective investment pursuant to Part 1 of the Law of 17th December 2010, as amended. The Company is an Undertaking for Collective Investment in Transferable Securities (“UCITS”).

Applications for shares in the sub-funds should not be made without first consulting the current Prospectus, Key Investor Information Document ("KIID"), Annual Report and Semi-Annual Report (“Offering Documents”), or other documents available in your local jurisdiction which is available free of charge from the Registered Office: European Bank and Business Centre, 6B route de Trèves, L-2633 Senningerberg, R.C.S. Luxemburg B 29 192. In addition, all Italian investors should refer to the ‘Extended Application Form’, and all Hong Kong investors should refer to the ‘Additional Information for Hong Kong Investors’ section, outlined within the Prospectus. Copies of the Prospectus, KIID, the Articles of Incorporation and the annual and semi- annual reports, in German, and further information can be obtained free of charge from the representative in Switzerland. The representative in Switzerland is Carnegie Fund Services S.A., 11, rue du Général-Dufour, 1204 Geneva. The paying agent in Switzerland is Banque Cantonale de Genève, 17, quai de l’Ile, 1204 Geneva. The document has been prepared solely for informational 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 views and opinions expressed are those of the portfolio management team at the time of writing/of this presentation and are subject to change at any time due to market, economic, or other conditions, and may not necessarily come to pass. These comments are not representative of the opinions and views of the firm as a whole. Holdings, countries and sectors/ region weightings are subject to change daily. All information provided is for informational purposes only and should not be deemed as a recommendation to buy or sell securities in the sectors and regions referenced. Information regarding expected market returns and market outlook is based on the research, analysis, and opinions of the team. These conclusions are speculative in nature, may not come to pass, and are not intended to predict the future of any specific Morgan Stanley Investment Management investment. Past performance is no guarantee of future results.

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