Global Sustain Strategy (USD)

Global Sustain Strategy (USD)

Global Sustain Strategy (USD)

 
 
Summary

The Morgan Stanley Global Sustain Strategy is a concentrated global equity strategy that invests in 25-50 high-quality, world-class companies at reasonable valuations that can sustain their high returns on operating capital over the long term. The portfolio has a low carbon impact and scores well on environmental, social and governance (ESG) factors as measured by third parties, such as MSCI ESG, relative to broad equity indices such as MSCI World Index. The strategy seeks to provide attractive long-term returns with less long-term volatility than the broader market.

 
 
Investment Approach
Philosophy

Global Sustain offers the same long-term focus on high-quality companies and integration of material ESG factors – both threats and opportunities to long-term returns – as the team’s other global equity strategies. The strategy has explicit restrictions against investments in companies with a core business* in tobacco, alcohol, adult entertainment, bulk commodities (coal, iron ore, etc.) and fossil fuels, gas and electrical utilities, controversial weapons and civilian firearms.

The team believes investing with a conscience is fully compatible with generating attractive long-term returns and that the best way to compound shareholders’ wealth over the long term is by owning very high-quality companies with sustainable and high returns on operating capital. Material social and environmental risks to the sustainability of high returns are more important than ever, given political and technological change. Leading the way on such issues can be a positive force for corporate success if it drives consumer and/or employee engagement. The higher the quality of a company, the more important the governance, as management has more degrees of freedom to mismanage the business.

*A core business activity is one that accounts for more than 10% of the relevant company’s revenues.

 
Differentiators
A ROBUST ACTIVE ESG PROCESS

Our bottom-up stock-picking approach, ongoing access to management and use, where appropriate, of external sources such as MSCI ESG and Sustainalytics data enable us to review material ESG issues with companies and engage with management where relevant.

INTEGRATING ESG WITHOUT COMPROMISING QUALITY

We look for companies that we believe have sustainably high return businesses that can compound over the long-term. We look for any risks or opportunities (including ESG factors) that may materially influence long-term returns on a case-by-case basis as part of our investment process.

ACTIVE PORTFOLIO MANAGER-LED ENGAGEMENT

As bottom-up long-term investors, the team interacts directly with company managements on issues they believe are material, and has done so for over 20 years.

 
 
 
Investment Process
1
Identify High-Return Companies (post exclusions)

• High unlevered returns on operating capital employed (ROOCE)

• High gross margins (pricing power)

• Capital-light business models driving free cash flow (FCF) generation

• Strong balance sheet

• Exclude tobacco, alcohol, adult entertainment, gambling, civilian firearms or weapons, bulk commodities, fossil fuels, and gas or electric utilities

2
Make Sure Returns Are Sustainable

•  Ability to remain relevant through powerful intangible assets including brands and networks, sustaining high barriers to entry. 

•  Returns sustainable against material threats or improvable through material opportunities, including environmental or social factors

•  Dominant market shares helping protect against new entrants

•  Stable sales–often repeat business driving recurring revenues

•  Steady organic growth and geographic spread

3
Confirm Management’s Commitment to Sustaining Returns

• Focus on return on capital rather than sales or EPS growth

• Capital discipline (reinvest at high returns or return the excess capital to shareholders)

• Committed to innovation and investment in franchises

• Review management incentives

• Sound governance structure

• Engagement on material issues or opportunities where relevant, including ESG factors

4
Valuation

• A focus on free cash flow, not accounting number

• FCF yield, DCF, EV/NOPAT

(EV = Enterprise Value [Market Value plus Net debt]. NOPAT = Net operating profit after tax)

Global-Quality-Global-Franchise-Global-Sustain-Investment-Process
 
 
Investment Team  
William Lock
Head of International Equity Team
29 years industry experience
Bruno Paulson
Managing Director
27 years industry experience
Nic Sochovsky
Managing Director
23 years industry experience
Marcus Watson
Executive Director
13 years industry experience
Alex Gabriele
Executive Director
12 years industry experience
Nathan Wong
Executive Director
21 years industry experience
Richard Perrott
Executive Director
15 years industry experience
Vladimir Demine
Head of ESG Research
19 years industry experience
Isabelle Mast
Executive Director
16 years industry experience
 

Team members may be subject to change at any time without notice. The investment team currently has 13 members; information on additional team members can be found on MSIM.com.

Effective March 31, 2021, Dirk Hoffmann-Becking has retired and is no longer serving as a portfolio manager for the Strategy.

 
 
 
 
 

RISK CONSIDERATIONS

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. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this Portfolio. Please be aware that this Portfolio may be subject to certain additional risks.  In general, equities securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, market and liquidity risks. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed countries. 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. 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. Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, correlation and market risks. Illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk). Privately placed and restricted securities may be subject to resale restrictions as well as a lack of publicly available information, which will increase their illiquidity and could adversely affect the ability to value and sell them (liquidity risk). ESG strategies that incorporate impact investing and/or Environmental, Social and Governance (ESG) factors could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. As a result, there is no assurance ESG strategies could result in more favorable investment 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 appropriate 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 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 MSCI World Index is a free float adjusted market capitalization weighted index that is designed to measure the global equity market performance of developed markets. The term "free float" represents the portion of shares outstanding that are deemed to be available for purchase in the public equity markets by investors. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. The index is unmanaged and does not include any expenses, fees or sales charges. It is not possible to invest directly in an index.

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

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

 

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Past performance of any product described on this site is not a reliable indication of future performance.


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