Strategies

US Long Duration Strategy

Strategy Inception

July 2006

Asset Class

Multi-Sector

Quick Facts

Benchmark

Capital Long Government/Credit Index

Top

Overview

Overview
Investment Approach
Investment Process
Portfolio Managers
Insights

Overview

The US Long Duration Strategy is a value-oriented strategy that seeks attractive total returns from income and capital appreciation by investing in U.S. Government and investment-grade corporate debt securities with at least ten years to maturity. To help achieve this objective, the strategy combines top-down macroeconomic assessment to determine overall sector allocation and exposures—with fundamental and quantitative analysis used for portfolio construction and security selection.

Differentiators

Customization

The team delivers fixed income expertise in a customized, solutions-based approach that optimizes the application of the team's global resources to the investment objectives of the individual client. The team is client-centric in all aspects of the relationship.

Right-Sized

As a mid-sized asset manager, the team has the depth and breadth of resources to provide our clients with options ranging from highly customized strategies to standardized fund options. The team benefits from a collaborative structure based on small team of sector specialists enabling them to confidently implement investment themes across portfolios.

Extensive Resources of a Global Firm

MSIM has a cohesive team of fixed income specialists in New York, London, Singapore and Tokyo who can identify opportunities to capture returns in all major markets worldwide. They bring together an impressive range of market experience, intellectual rigour and academic achievements.

Intensive Risk Management

At the strategy level, the team integrates daily monitoring that helps ensure compliance with guidelines and quantifies portfolio risk exposures. At the firm level, the risk management team operates independently of the business functions.

Investment Approach

The team believes that market participants may often misjudge the likely paths of monetary policy, inflation and credit quality, thus creating market inefficiencies that can be explored by proper active management. The team thinks that the employment of fundamental and quantitative analyses is the best way to identify, assess and exploit these mispricings, and to generate potential superior returns over the long term.

In the team’s view, successful long duration management depends on several factors:

Forward-looking yield curve analysis
Forward-looking credit analysis
Risk management and broad diversification of portfolio
Defense from deflation and downturns

Investment Process

Macro Analysis:

The team seeks to determine what themes are driving asset prices across rates, countries and currencies and to evaluate the investment opportunity set based on a thematic investment thesis. The top-down process uses a combination of fundamental and quantitative analysis to identify and evaluate these investment opportunities.

Asset Allocation:

The Asset Allocation team is led by Michael Kushma, the CIO of the Global Fixed Income team and is comprised of the heads of each research group. The team seeks to first, identify areas where implied market forecasts are out of line relative to historic trends and second, to identify the catalyst for the market to adjust. Internal debate is a key feature of our investing philosophy, ensuring investment ideas are tested thoroughly. The team debates relative value across sectors and determine broad strategy targets.

Research:

The team's approach to fixed income investing uses a disciplined investment process and a commitment to research. Research is conducted by dedicated teams specializing in a particular niche of the fixed income market. The research teams use in-depth fundamental analysis, complemented by quantitative tools, to generate bottom-up investment ideas and are responsible for security selection.

Portfolio Construction and Risk Management:

Portfolio managers are responsible for implementing the investment strategies. They work to construct each portfolio in a way that conforms to individual client/strategy guidelines and objectives, while staying true to the broad strategy targets that are set by the Asset Allocation team. The portfolio managers achieve these targets by working with the research analysts to fill the sector buckets with bottom-up security selection ideas.

The team views risk management as an integral part of our investment process. Based on this belief, they seek to protect their portfolios from a variety of risks through diversification, credit risk protection, and liquidity with the goal that no single risk dominates the portfolio.

Trading:

All fixed income trades are executed by centralized Global Fixed Income trading desk. Central dealing segregates the trading function away from the decision making process, and allows the portfolio managers to focus on managing the portfolio. This procedural separation helps ensure that all accounts are structured according to the parameters established by the team.

Portfolio Managers

Effective December 1, 2023, Joseph Mehlman and Stella Ma were added as Portfolio Managers on the Strategy, and Neil Stone and Matt Dunning are no longer serving as Portfolio Managers.

Team Insights

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. 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 strategy. Please be aware that this strategy may be subject to certain additional risks. 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 and may result in periods of volatility and increased portfolio redemptions. In a declining interest-rate environment, the portfolio may generate less income. Longer-term securities may be more sensitive to interest rate changes. Investments in securities rated below investment grade (commonly known as “junk bonds”) present greater risk of loss to principal and interest than investment in higher-quality securities. Mortgage-backed securities (MBS) 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. The portfolio may engage in active and frequent trading of its portfolio securities. A high portfolio turnover rate could result in high brokerage costs and an increase in taxable capital gains distributions. Derivative instruments can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on the portfolio’s performance. When investing in value securities, the market may not have the same value assessment as the manager, and, therefore, the performance of the securities may decline.

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.

This material is a general communication, which is not impartial and all information provided has been prepared solely for informational and educational 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 Bloomberg U.S. Long Government/Credit Index tracks the securities in the long maturity range of the Bloomberg U.S. Government/Credit Index which tracks investment-grade (BBB-/Baa3) or higher publicly traded fixed-rate U.S. government, U.S. agency, and corporate issues.

“Bloomberg®” and the Bloomberg Index/Indices used are service marks of Bloomberg Finance L.P. and its affiliates, and have been licensed for use for certain purposes by Morgan Stanley Investment Management (MSIM). Bloomberg is not affiliated with MSIM, does not approve, endorse, review, or recommend any product, and. does not guarantee the timeliness, accurateness, or completeness of any data or information relating to any product.

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.