Emerging Markets Leaders Strategy
Emerging Markets Leaders Strategy

Emerging Markets Leaders Strategy

 
 
 
Summary

The Emerging Markets Leaders Strategy seeks to deliver steady and sustainable returns over a longer course of time. The Strategy provides investors exposure to future growth industries and identifies what we consider to be the leading companies within those industries. The Strategy also chooses a focused number of high-quality, well-managed companies exhibiting strong capital discipline. Our approach seeks lower volatility and steady compounding growth to help deliver sustainable returns over the long run.

5-7%
Target Alpha
30-40%
Turnover Range
8-10%
Expected Tracking Error
2011
Inception Date
 
 
Investment Approach
Philosophy

Drawing on the Global Emerging Markets Equity team’s insight into the drivers of growth in emerging markets, the team seeks to identify secular, structural themes that support steady company earnings. The team bases its investment philosophy on proprietary research that shows how both macro-level and stock-specific factors can drive risks and returns in emerging markets. As a result, the team seeks to add value by integrating macro-thematic research and bottom-up stock selection with a growth bias. 

The team believes that in the long term, the dynamics of emerging markets can be beneficial to the earnings of selective growth companies. Rather than focus on short-term cyclical bubbles, the team takes a thematic approach to investing by identifying longer-term trends that are not fully appreciated by market participants. As often as possible, the team takes contrarian positions that allow them to discover sound reasons why the consensus overlooks or ignores elements of an opportunity where positive change may yet occur.

 

 
Differentiators
Forward-looking theme

The team identifies the most important investment growth themes in the emerging markets, and apply extensive bottom-up research to select the stocks they believe are best-placed to benefit. They seek to avoid volatile business models that can destroy value during down markets.

Benchmark-agnostic growth

The team expands the universe to include companies that earn a majority of their revenues from emerging markets, but target only 30 to 40 companies with a focus on growth and quality. Their approach is risk-managed and untied to a benchmark, with an expected high tracking error and lower standard deviation.                                                               

Compounding effects

The team seeks to outperform in declining markets and reduce a portion of the volatility inherent in emerging market equities. They believe this has led to higher, more stable returns over time through the potential power of compounding.

 
 
 
Investment Process
1
Thematic Growth

In identifying thematic growth, the team looks for underpenetrated industries, country-driven opportunities, low-capital intensity and competition, and minimal government involvement.

2
High-Quality Companies

The team looks for robust corporate goverence, strong management, earning predictability and growing market share.

3
Entry and Exit Prices

The team then looks for entry, sizing, and exit prices to construct the final portfolio. The final portfolio consists of approximately 30 to 40 high-quality companies with a growth bias. They target annual turnover of 30 to 40 percent.

 
 
Portfolio Managers
Managing Director
23 years industry experience
Executive Director
12 years industry experience
 
 
Insights
SEMI-ANNUAL COMMENTARY
Why Smaller Companies May Offer the Best Exposure to EM Consumers
Mar 21, 2017
The team explores why smaller companies may offer the best exposure to the emerging market consumer.
Macro Insight
Ashutosh Sinha in P&I: Emerging Markets
Apr 17, 2017
Ashutosh Sinha, Portfolio Manager of the Emerging Markets Leaders strategy, shares his views in Pensions & Investments’ Emerging Markets Supplement.
Video
Finding Growth in the Emerging Markets
Apr 20, 2016
Ashutosh talks us through why some of the best growth anywhere in the world is still to be found in the emerging markets.
 
 
 
 

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. Accordingly, you can lose money investing. Please be aware that this portfolio may be subject to certain additional risks. In general, equities securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, market and liquidity risks. The risks of investing in emerging market countries are greater than the risks generally associated with investments in foreign developed countries. Stocks of small- and medium-capitalization companies entail special risks, such as limited product lines, markets, and financial resources, and greater market volatility than securities of larger, more-established companies. Derivative instruments can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on the Portfolio’s performance. Illiquid securitiesmay be more difficult to sell and value than public traded securities (liquidity risk). Nondiversified portfolios often invest in a more limited number of issuers. As such, changes in the financial condition or market value of a single issuer may cause greater volatility.

 

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 suitable 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.

All information provided has been prepared solely for information 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.

DEFINITIONS

Alpha is the excess return or value added (positive or negative) of the portfolio’s return relative to the return of the benchmark.

Tracking error is the standard deviation of the difference between the portfolio and the benchmark returns. 

Annual turnover measures the percentage of securities within the portfolio that changed during the most recent fiscal year.

OTHER CONSIDERATIONS

The MSCI Emerging Markets Net Index is a free float-adjusted market capitalization weighted index that is designed to measure equity market performance of emerging markets. The term "free float" represents the portion of shares outstanding that are deemed to be available for purchase in the public equity markets by investors. The MSCI Emerging Markets Net Index currently consists of 21 emerging market country indices. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends.

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

The tracking error, target alpha, number of companies and countries, and turnover range represent typical ranges and are not a maximum number. The portfolio may exceed these from time to time due to market conditions and outstanding trades.

Morgan Stanley Investment Management is the asset management division of Morgan Stanley.

 

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