Emerging Markets Small Cap Strategy
Emerging Markets Small Cap Strategy

Emerging Markets Small Cap Strategy

 
 
 
Summary

The Emerging Markets Small Cap Strategy seeks long-term capital appreciation by investing primarily in equity securities of small-capitalization companies operating in emerging markets. To help achieve its objective, the Strategy combines top-down country allocation with bottom-up stock selection.

5-7%
Target Alpha
45-55%
Turnover Range
6-8%
Expected Tracking Error
2015
Inception Date
 
 
Investment Approach
Philosophy

We focus on high-quality small cap investments across emerging and frontier markets, and seek the most compelling opportunities by building an actively managed, focused portfolio of companies positioned to benefit from these growth themes. To help achieve our objective, we combine top-down country allocation with bottom-up stock selection.

 
Differentiators
Country allocation

The Strategy seeks to overweight countries whose growth, in the team’s opinion, will beat expectations, while underweighting problem countries.

Growth bias

The investment team thinks that future economic growth matters most for stock returns and looks to invest in quality companies with sustainable growth models.

Universe differentiation

The portfolio is concentrated in a range of 65 to 80 issuers and frontier countries are limited to 20% of total holdings.

 
 
 
Investment Process
1
Integrate top-down country allocation and bottom-up stock selection
2
Assess global economic conditions and apply cross-sectional analysis to determine portfolio allocations
3
Analyze dynamics, valuation and sentiment at both country and company levels
4
Identify quality management, return on equity and solid free cash flow generation
 
 
Portfolio Manager
Managing Director
22 years industry experience
 
 
 
 

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 in this strategy. Please be aware that this strategy 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. 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 publicly traded securities (liquidity risk).

 

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 Small Cap Net Index includes small cap representation across 23 Emerging Markets countries. With 1,864 constituents, the index covers approximately 14% of the free float-adjusted market capitalization in each country. The small cap segment tends to capture more local economic and sector characteristics relative to larger Emerging Markets capitalization segments.

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 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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Not FDIC Insured—Offer No Bank Guarantee—May Lose Value
Not Insured By Any Federal Government Agency—Not A Deposit

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