Strategies
Fixed Income
European High Yield Bond Strategy
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European High Yield Bond Strategy
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Strategies
Fixed Income
European High Yield Bond Strategy
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European High Yield Bond Strategy
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The investment team believes there is a broad scope for fixed income market participants to mis-value a company’s default risk, resulting in bond prices failing to reflect what, in the team’s view, is the true credit profile of a company. However, over time, the team believes that the market will recognize the high-quality of the issuer, and re-price the securities accordingly, thereby offering investors a potential opportunity for superior relative returns over the long term.
The team believes that successful credit management depends on four factors: a value-driven process, forward looking credit analysis, careful control of overall portfolio risk through broad diversification and a global approach to investing. In the High Yield space, the team believes that securities should be evaluated for their total return over the entire market cycle, and not just yield generation. This belief often leads the team to invest in the upper tiers of the High Yield market, and even Investment Grade securities when it believes that their return potential exceeds that of lower rated securities.
Total return orientation |
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Rather than focusing primarily on yield generation, the team evaluates securities based on their total potential return. |
Extensive Experience |
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Morgan Stanley Investment Management has managed high yield bond strategies, as a separate asset class, since 1989 and throughout a variety of volatile markets conditions. |
Global Resources |
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An emphasis on a team-based approach to investment and research, allows investors to benefit from the combined insight and expertise of the Global Fixed Income Team. These global resources enhance the team’s ability to manage high yield. |
| 1 | Macro analysis |
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The team begins with an assessment on the optimal beta positioning for the portfolio based on valuations and a top-down macroeconomic analysis. |
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| 2 | Fundamental Screening |
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The team applies what they believe to be a unique combination of quantitative and qualitative filters to identify approximately 170 bond issuers that meet the team’s investment criteria in terms of competitive position, franchise value and management quality. |
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| 3 | Credit Analysis |
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The team conduct rigorous credit analysis that primarily focuses on financial risk, business risk and management ability/intentions. |
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| 4 | Valuation Analysis |
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The team’s credit analysis narrows the universe to approximately 150 investment candidates on which a relative valuation assessment is conducted. The team seeks the most undervalued securities that will provide the best risk-adjusted total return, and focus on cash-flow generation, leverage, asset values, earnings stability and management quality to determine an overall risk assessment, which is then compared to the spread at which the company’s bonds trade to determine value. |
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| 5 | Portfolio Construction |
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A portfolio of 100 to 125 securities is constructed, with sector allocation driven primarily from bottom-up security selection (subject to our risk management guidelines). |
