Global Change

Global Change

Global Change

 
 
Summary

Global Change seeks long-term capital appreciation by investing globally in high quality companies with strong environmental, social and governance (also referred to as ESG) alignment consistent with the United Nations Sustainable Development Goals.   To achieve its objective, the investment team typically favors companies it believes have sustainable competitive advantages that can be monetized through growth. The investment process integrates analysis of sustainability with respect to disruptive change, financial strength and ESG.  The investment team employs a holistic approach to ESG within its company quality assessment by analyzing potential impacts to humanity’s health, environment, liberty and productivity and corporate governance practices to help ensure agency, culture and trust.  The strategy restricts businesses operating in industries with material environmental and social externalities and/or corporate governance risk, including alcohol, tobacco, fossil fuels and weapons.

 
 
Investment Approach
Philosophy

Our investment philosophy is simple: We believe that by applying a price discipline to investments in high quality companies - strictly defined as those with competitive advantages and long-term growth that creates value - we can best capture opportunities and manage risk for clients. 

The investment team believes that strong stock selection is derived from long-term investments purchased at a large discount to intrinsic value. We believe these long-term investments are best protected when they are sustainable with respect to disruption, financial strength and ESG externalities, and best enhanced when the underlying company has strong competitive advantages and growth that creates value.

 
Differentiators
Culture

The investment team’s culture is shaped by the cultivation of core values that are cultivated and reinforced in many ways: curiosity, perspective and partnership.

Reading Network

As part of Counterpoint Global, the Global Opportunity team has access to a reading network that includes more than 150 investor and non-investor participants at Morgan Stanley. This allows the team to leverage the distributed knowledge of the firm and encourages cross-disciplinary thinking. Each week the team circulates articles, essays and thought pieces from a wide range of sources outside mainstream Wall Street in order to help enhance its knowledge and make informed investment decisions.

Distinguishing Characteristics

– We incentivize our team in long-term alignment with clients

– We value curiosity, perspective and partnership

– We promote a creative work environment that adapts as the world evolves

 
 
 
Investment Process

We follow a five-step investment process incorporating idea generation, quality assessment, valuation, risk management and portfolio construction:

1
Idea generation
 

comes from screening, contact networks, pattern recognition, disruptive change research and our extensive reading. Ideas are generated from an ongoing set of activities conducted individually and collaboratively.

2
Quality Assessment
 

When we formulate our investment thesis on the quality of a company, we ask three key questions to determine the sustainability of competitive advantage and how it can be monetized through growth: 

Is the company a disruptor or is it insulated from disruptive change? 

Does the company demonstrate financial strength with high returns on invested capital, high margins, strong cash conversion, low capital intensity and low leverage? 

Are there environmental or social externalities not borne by the company, or governance and accounting risks that may alter the investment thesis?

Competitive advantages we favor include pricing power, differentiated competitive strategies, habitual services, consumable products, recurring revenue and limited threat from substitutes, rivals, suppliers, customers and regulators. 

Growth characteristics we seek include scalable business models that create value for happy customers, organic over acquisitive, secular over cyclical with a good mix between unit and pricing growth.

3
Valuation
 

focuses on the ratio of price to value derived from the key value drivers pricing, units, margin and multiple that determine the present value of free cash flow generation over a five-year time horizon.

4
Risk Management
 

We define risk in absolute terms: risk is losing money. We believe that idiosyncratic risk can be reduced by addressing what matters at the company level. We mitigate valuation risk by not paying a price that exceeds our estimate of value. We mitigate sustainability risk by analyzing the threat of disruption, financial strength and ESG externalities. We mitigate fundamentals risk of deteriorating competitive advantage and growth opportunities. Portfolio risks are mitigated by reducing correlated factor exposures with the support of monthly reports from portfolio attribution and risk teams.

5
Portfolio Construction
 

We seek to buy when the quality is high and the price is below value. We weight the portfolio based on low price to value, high certainty of value drivers and low correlation between ideas.

 
 
 
 
Investor  
Kristian Heugh
Head of Global Opportunity Team
21 years industry experience
 
 
 
 

The content of this publication has not been approved by the United Nations and does not reflect the views of the United Nations or its officials or Member States. See https://www.un.org/sustainabledevelopment/sustainable-development-goals for more details on the Sustainable Development Goals.

Risk management implies an effort to monitor risk, but should not be confused with and does not imply low risk.

RISK CONSIDERATIONS

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

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, equities securities’ values also fluctuate in response to activities specific to a company. There is no assurance strategies that incorporate ESG factors will result in more favorable investment performance. 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 risks associated with investments in foreign developed countries. 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. Focused Investing. To the extent that the Portfolio invests in a limited number of issuers, the Portfolio will be more susceptible to negative events affecting those issuers and a decline in the value of a particular instrument may cause the Portfolio’s overall value to decline to a greater degree than if the Portfolio were invested more widely. China Risk. Investments in securities of Chinese issuers, including A-shares, involve risks associated with investments in foreign markets as well as special considerations not typically associated with investments in the U.S. securities markets. Investments in China involve risk of a total loss due to government action or inaction. Additionally, the Chinese economy is export-driven and highly reliant on trade. Adverse changes to the economic conditions of its primary trading partners, such as the United States, Japan and South Korea, would adversely impact the Chinese economy and the Portfolio's investments. Moreover, a slowdown in other significant economies of the world, such as the United States, the European Union and certain Asian countries, may adversely affect economic growth in China. An economic downturn in China would adversely impact the Portfolio's investments. The Portfolio may invest in A-shares listed and traded through Stock Connect, or on such other stock exchanges in China which participate in Stock Connect. Trading through Stock Connect is subject to a number of restrictions that may affect the Portfolio's investments and returns. Moreover, Stock Connect A-shares generally may not be sold, purchased or otherwise transferred other than through Stock Connect in accordance with applicable rules. The Stock Connect program  may be subject to further interpretation and guidance. Future developments regarding the program may restrict or adversely affect the Portfolio's investments or returns. Privately placed and restricted securities may be subject to resale restrictions as well as a lack of publicly available information, which will increase their illiquidity and could adversely affect the ability to value and sell them (liquidity risk). Asia market entails liquidity risk due to the small markets and low trading volume in many countries. In addition, companies in the region tend to be volatile and there is a significant possibility of loss. Furthermore, because the strategy concentrates in a single region of the world, performance may be more volatile than a global strategy. Exchange traded funds (ETFs) shares have many of the same risks as direct investments in common stocks or bonds and their market value will fluctuate as the value of the underlying index does. By investing in exchange traded funds (ETFs), the portfolio absorbs both its own expenses and those of the ETFs it invests in. Supply and demand for ETFs may not be correlated to that of the underlying securities. 

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 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 investment 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.

OTHER CONSIDERATIONS

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 MSCI All Country World Index (ACWI) is a free float-adjusted market capitalization weighted index designed to measure the equity market performance of developed and 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 benchmark is used for comparative purposes only. The information presented represents how the portfolio management team generally implements its investment process under normal market conditions.

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

 

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