Insights
MS INVF Global Asset Backed Securities Fund: Global Coronavirus Update
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Market Pulse
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March 12, 2020
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MS INVF Global Asset Backed Securities Fund: Global Coronavirus Update |
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.
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.