Europe Opportunity
Europe Opportunity

Europe Opportunity

 
 
 
Summary

Morgan Stanley Europe Opportunity seeks to maximize capital appreciation by investing primarily in high quality established and emerging companies located in Europe that the investment team believes are undervalued at the time of purchase. To achieve its objective, the investment team typically favors companies it believes have sustainable competitive advantages that can be monetized through growth. The investment process integrates analysis of sustainability with respect to disruptive change, financial strength, environmental and social externalities and governance (also referred to as ESG).

>80%
Active Share 1
20-60
Number of Companies 2
 
 
Investment Approach
Philosophy

Our investment philosophy is simple: Warren Buffett investment principles applied to growing companies.3 We believe that by applying a price discipline to investments in high quality companies, strictly defined as those with what we consider competitive advantages and long-term growth that creates value, we can best capture opportunities and manage risk for clients.

 
Differentiators
Culture

The investment team’s culture is shaped by the cultivation of core values that are cultivated and reinforced in many ways: intellectual curiosity and flexibility, perspective, self-awareness and partnership.

Reading Network

As part of Counterpoint Global, the Global Opportunity team has access to a reading network that includes more than 150 investor and non-investor participants at Morgan Stanley. This allows the team to leverage the distributed knowledge of the firm and encourages cross-disciplinary thinking. Each week the team circulates articles, essays and thought pieces from a wide range of sources outside mainstream Wall Street in order to help enhance its knowledge and make informed investment decisions.

Distinguishing Characteristics

–Our incentives foster long-term alignment with clients.

–Our disruptive change research helps find big ideas for portfolios.

–Our core values of intellectual curiosity and flexibility, perspective, self-awareness and partnership promote a  sustainable and repeatable investment process.

–Our investment philosophy is simple: Warren Buffett investment principles applied to growing companies.1

 
 
 
Investment Process
1
Idea generation

Comes from screening, contact networks, pattern recognition, disruptive change research and our extensive reading.

2
Quality Assessment

When we formulate our investment thesis on the quality of a company, we ask three key questions to determine the sustainability of  competitive advantage and how it can be monetized through growth:

- Is the company a disruptor or is it insulated from disruptive change?

- Does the company demonstrate financial strength with high returns on invested capital, high margins, strong cash conversion, low capital  intensity and low leverage?

- Are there environmental or social externalities not borne by the company, or governance and accounting risks  that may alter the investment thesis?

3
Valuation

Focuses on the ratio of price to value derived from the key value drivers pricing, units, margin and multiple that determine the present value of free cash flow generation over a five-year time horizon.

4
Risk Management

We define risk in absolute terms: risk is losing money. We believe that idiosyncratic risk can be reduced by addressing what matters at the company level. We manage valuation risk by not paying a price that exceeds our estimate of intrinsic value. We manage sustainability risk by analyzing the threat of disruption, financial strength and ESG externalities. We manage fundamental risk of deteriorating competitive advantage and growth opportunities. Portfolio risks are mitigated by reducing correlated factor exposures with the support of monthly reports from portfolio attribution and risk teams.

5
Portfolio Construction

We buy when the quality is high and the price is below our estimate of intrinsic value. We weight the portfolio based on low price to value, high certainty of value drivers and low correlation between ideas. The result of our bottom-up investment process is a benchmark agnostic, highly differentiated portfolio concentrated in our highest conviction ideas.