Absolute Return Strategy

Absolute Return Strategy

Absolute Return Strategy

 
 
 
Summary

The Global Multi-Asset team Absolute Return Strategy uses a global macro and thematic approach, and invests across equities, fixed income, currencies and commodities. The Strategy seeks to generate a low beta to broad asset classes by taking the majority of risk in uncorrelated, hedged positions. Directional positions are also taken, but on a tactical and opportunistic basis. Rather than individual security selection, the Strategy invests in opportunities at the asset class, country, sector and thematic levels. The research and decision-making process is fundamentally-driven and discretionary, but supported by an extensive quantitative research platform.

<10%
Target volatility1
<0.5x
Target beta to global equities1
 
 
Investment Approach
Philosophy

The Global Multi-Asset team believes that global multi-asset class investing presents opportunities to generate excess return due to structural inefficiencies such as home-country bias and the tendency for a majority of investors to focus on security selection. In addition, regions and countries have independent economic drivers, which often give rise to uncorrelated investment opportunities.  We also believe that investors have a tendency to extrapolate current trends into the future, mistaking cyclical dynamics for structural changes, and vice versa.  We therefore invest around major macro-economic turning points, where we think investors are most likely to misprice assets amid changing dynamics.

 
Differentiators
Thematic Approach to Multi-Asset Class Investing

We apply a global macro and thematic approach to multi-asset investing, focusing on major macroeconomic shifts and structural transformations which may give rise to asymmetric risk/ reward opportunities.

Seeks Low Correlation to Financial Markets

Majority of risk taken in uncorrelated, hedged positions, with directional positions taken on a tactical and opportunistic basis. The Strategy has the flexibility to respond quickly to changing market environments and the potential to perform well in a variety of investment climates.

Disciplined Risk Management

Multiple layers of risk management, including a stop-loss policy which seeks to mitigate downside risk, and independent risk monitoring at the firm level.

 
Investment Process

 

The Global Multi-Asset team offers investors access to an investment approach focusing on opportunities arising from macroeconomic changes and structural transformations that have not yet been discounted in valuations. The team’s investment process seeks to identify attractive risk/reward opportunities based on three primary criteria: valuation, fundamental dynamics, and sentiment. The team believes that these three tools are most powerful when used in combination. The team invests in opportunities at the asset class, country, sector and thematic levels, rather than concentrating on individual security selection.

 

 

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
Sergei Parmenov
Managing Director
25 years industry experience
 
 
 
 

1 There is no assurance that these targets will be attained.

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. 

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. 

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

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.

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.

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 Bank Of America Merrill Lynch US Dollar 1-Month LIBID Average Index tracks the performance of a basket of synthetic assets paying LIBID to a stated maturity. The index purchases a new instrument each day, priced at par, having exactly its stated maturity and with a coupon equal to that day’s fixing rate. All issues are held to maturity. Each day the index is comprised of a basket of securities. The index is not marked to market. The returns represent the accrued income generated by the equally weighted average of all the coupons in the basket for a given day.

There is no assurance that the targets presented above will be attained.

DEFINITIONS

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Tracking error is the standard deviation of the difference between the portfolio and the benchmark returns. Volatility is a statistical measure of the dispersion of returns for a given security or market index.

OTHER CONSIDERATIONS

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

 

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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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