Frontier Markets Equity Strategy
Frontier Markets Equity Strategy

Frontier Markets Equity Strategy

 
 
 
Summary

The Frontier Markets Equity Strategy is a growth strategy that seeks  capital appreciation by investing in equity securities of frontier emerging markets. To help achieve its objective, the Strategy combines top-down country allocation with bottom-up stock selection and disciplined risk management.

5-7%
Target Alpha
45-55%
Turnover Range
6-8%
Expected Tracking Error
2007
Inception Date
 
 
Investment Approach
Philosophy

The Frontier Emerging Markets Equity team believes that frontier markets are in various stages of economic development but generally lag the “mainstream” emerging markets in terms of economic and financial market reform. Their equity market performance correlation with other markets has been historically low because of their limited integration with the rest of the world’s financial markets, thus providing potential diversification benefits.

The team regards these “non-core” emerging markets as attractive, new investment destinations with unrealized economic potential. Further, it believes their rapid productivity gains, underpenetrated consumer markets and healthy infrastructure budgets are among the compelling catalysts likely to lead to strong and sustainable company-earnings potential.

 

 
Differentiators
Low Correlation

Opportunities in frontier markets have been domestically driven, leading to historically low correlation to each other, to emerging and to developed markets, providing potential sources of diversified alpha.1

Lower Realized Volatility

Although frontier markets are perceived as being more volatile, over the past five years their volatility has been lower than that of emerging markets due to low cross-correlation among frontier markets.2

Established Track Record

The team has been investing in emerging markets since the mid-1980s, and this strategy was one of the first dedicated pure-play frontier markets funds.

 
 
 
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 Managers
Managing Director
22 years industry experience
Executive Director
13 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 and that the value of Portfolio shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in this Portfolio. 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 inforeign markets entail special risks such as currency, political, economic, market and liquidity risks. The risks of investing in frontier emerging markets are greater than risks associated with investments in other foreign or U.S. issuers and they are often considered highly speculative in nature. Investment opportunities in many frontier emerging markets may be concentrated in the banking industry, which could have a disproportionate impact on the portfolio’s performance. 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. 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. Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, correlation and market risks. Illiquid securities may be more difficult to sell and value than public traded securities (liquidity risk).

 

On November 30, 2016, the Frontier Emerging Markets Equity Strategy was renamed Frontier Markets Equity Strategy.

1 These studies are for illustrative purposes only and are not meant to depict the performance of the Strategy. Indexes include MSCI Frontier, MSCI Emerging Markets, MSCI World, MSCI EAFE and S&P 500. Source: Morgan Stanley Investment Management. 

2 These studies are for illustrative purposes only and are not meant to depict the performance of the Strategy. Indexes include MSCI Frontier and MSCI Emerging Markets. Source: Factset.

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 Index (MSCI EM) is a free float-adjusted market capitalization weighted index that is designed to measure equity market performance of emerging markets

The MSCI Frontier Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of frontier markets. The MSCI Frontier Markets Index currently consists of 24 frontier market country indices. .

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the international equity market performance of developed markets, excluding the US & Canada. 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 World Index is a free float adjusted market capitalization weighted index that is designed to measure the global equity market performance of developed 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 S&P 500® Index measures the performance of the large cap segment of the U.S. equities market, covering approximately 75% of the U.S. equities market. The Index includes 500 leading companies in leading industries of the U.S. economy.

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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Not Insured By Any Federal Government Agency—Not A Deposit

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