Dynamic Value Strategy

Dynamic Value Strategy

Dynamic Value Strategy

 
 
Summary

Dynamic Value is a concentrated U.S. value equity strategy. The strategy seeks to identify the cheapest U.S. Stocks (Value stocks) using a proprietary, multi-factor, systematic framework. In addition, the strategy dynamically manages exposure to Value stocks and Anti-Value stocks (the most expensive stocks) based on their relative attractiveness: 

  • When Value stocks are most attractive relative to historical averages, the strategy will target +130% in Value stocks and -30% in Anti-Value stocks.1
  • When Value stocks are at their least attractive levels relative to historical averages, the strategy will target +70% in Value stocks and +30% in Anti-Value stocks.
     

Investing in Value and Anti-Value positions will be done directly and through derivatives.

 
 
Investment Approach
Philosophy

Value stocks have outperformed the broad equity market over the long term, with periodic downcycles.2  After a recent severe downcycle, we believe that Value, properly defined, will continue to outperform.  Moreover, Value is particularly attractive currently, given very cheap starting valuations and improving support from fundamental dynamics.  We believe Value is on the cusp of a structural bull market, driven by a regime shift from “Low Nominals” (low growth, interest rates, and inflation) to a higher nominal growth, interest rates, and inflation environment. 

The Dynamic Value strategy seeks to provide a more dynamic and concentrated approach, compared with traditional Value investing.

  1. The proper definition of Value is key.  Our multi-factor approach to identifying Value stocks results in a high active share portfolio, unlike passive Value index-replicating exchange traded funds (ETFs) which have a high overlap with broad market indices. 
  2. Despite Value’s long-term outperformance, Value has historically experienced periodic downcycles, and there are times when Value will be more or less attractive compared with history.  The strategy is designed to dynamically increase/decrease exposure to Value stocks and sectors depending on the attractiveness of Value relative to Anti-Value at a given point in time. 
 
Differentiators
Our approach means Value investing is never out of style

With the ability to dynamically manage exposure to Value and Anti-Value, we believe that the strategy can generate alpha in a variety of market environments.

Value Properly Defined

The GMA team definition of Value, which is multi-factor and equal weighted, is more precise and tries to avoid the sector and capitalization biases inherent in passive Value indices.

Significant team experience

Investment team brings a 20-year track record applying a Value-oriented approach to global multi-asset investing

 
Investment Process

I. The Global Multi-Asset (GMA) Team's well-established research process and investment discipline is leveraged in this innovative approach to value investing

II. Value & Anti-Value stock portfolios determined systematically, managed tactically based on attractiveness of value stocks 

This information represents how the investment team generally applies its investment process under normal market conditions. The team implements positions either directly by purchasing securities or through the use of derivatives. 

 
 
 
 
 
Portfolio Managers  
Cyril Moulle-Berteaux
Head of Global Multi-Asset Team
30 years industry experience
Mark Bavoso
Managing Director
38 years industry experience
Sergei Parmenov
Managing Director
25 years industry experience
Doug Rentz
Executive Director
22 years industry experience
 
 
 
 

1 The weights  represent typical ranges and are not a maximum number. The portfolio may exceed this from time to time due to market conditions and outstanding trades.
2 Source: MSIM Global Multi-Asset Team Analysis, Haver Analytics as of March 31, 2021. Fama-French Value and Growth Indices  1925-1978; Russell 1000 Value and Growth Indices since 1978. The index performance is provided for illustrative purposes only and is not meant to depict the performance of a specific investment. Past performance is no guarantee of future results. See below for index definitions.

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, equity securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed countries. 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. High yield securities (“junk bonds”) are lower rated securities that may have a higher degree of credit and liquidity risk. Mortgage- and asset-backed securities (MBS and ABS) 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. Certain U.S. government securities purchased by the Portfolio, such as those issued by Fannie Mae and Freddie Mac, are not backed by the full faith and credit of the United States. It is possible that these issuers will not have the funds to meet their payment obligations in the future. Real estate investment trusts are subject to risks similar to those associated with the direct ownership of real estate and they are sensitive to such factors as management skills and changes in tax laws. Derivative instruments can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on the Portfolio’s performance. Illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk). By investing in investment company securities, the portfolio is subject to the underlying risks of that investment company's portfolio securities. In addition to the Portfolio's fees and expenses, the Portfolio generally would bear its share of the investment company's fees and expenses.

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.

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.

Diversification does not protect you against a loss in a particular market; however it allows you to spread that risk across various asset classes.

DEFINITIONS

Value stocks are defined by the GMA Team’s proprietary screening process. Anti-Value stocks are defined as the most expensive Value stocks based on the GMA Team’s proprietary screening process.

The Russell 1000® Value Index is an index that measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000® Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000® Index is an index of approximately 1,000 of the largest U.S. companies based on a combination of market capitalization and current index membership. The Fama-French Value and Growth Indices are based on the proprietary work of Kenneth French and Eugene F. Fama and their research on the value effect and multi-factor asset pricing models.

OTHER CONSIDERATIONS

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

 

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