Active International Allocation Strategy

Active International Allocation Strategy

Active International Allocation Strategy

 
 
Summary

The Active International Allocation (AIA) Strategy seeks long-term capital appreciation. The investment team relies on a proprietary, top-down framework to quantitatively and qualitatively rank developed and emerging countries, where allocation decisions are based on a country's projected future economic growth and equity market return potential. The approach combines country analysis with sector allocation and bottom-up stock selection, where investment decisions are implemented either through sector, industry or stock-specific allocations within and across markets. Investments are based on fundamental analysis, in an effort to identify those equities that stand to benefit the most from the team's investment view.

 
 
Investment Approach
Philosophy

For international equity investing, we believe that applying a global macro framework to evaluate the return potential of countries, sectors, and industries and themes combined with fundamental stock selection, is the best way to generate long-term capital appreciation over a market cycle.

We consider future economic growth of countries and currency movements to be critical drivers of stock returns. We actively select among countries and employs fundamental analysis to identify attractive sectors, industries and themes and equities with the ability to generate long-term earnings growth.

All country/currency, sector, industry and thematic, and stock weightings are driven by a disciplined investment process and a fundamental analysis of inherent quality and valuation characteristics.

 

 
Differentiators
A differentiated core approach to global equity investing

We combine a top down and bottom up approach to global equity investing. We analyze where we are in the macro cycle, evaluate the return potential of each country through this macro lens and identify stocks that best reflect our views of the current and expected market environment.

A highly active, high conviction, ‘go anywhere’ core portfolio

The portfolio is designed to capitalize on our best ideas in developed, emerging and select frontier markets on an unconstrained basis. The managers seek to generate alpha through high conviction allocations to countries, sectors, industries, and securities.

A combination of Growth and Value investing styles

Style allocations are actively adjusted as we move through the economic cycle. We position the portfolio in those stocks that best represent our definition of ‘Sustainable Growers’ or ‘Compelling Value’ opportunities.

 
 
 
Investment Process
1
Identifying where we are in the Global Economic Cycle

Our process begins with a macro-outlook of the global economic and business cycles to determine positioning in the current and anticipated market environment.

2
Country Allocation

Within this global context, we conduct original, macro-thematic research to determine each country’s future economic and equity return potential, investment themes and market inefficiencies to determine our country allocations.

Using our proprietary country analysis framework that encompasses both quantitative and qualitative inputs and includes rigorous credit and currency analysis, we take overweight positions in those countries where we find the best equity return potential and avoid those countries with macro risks or structural issues.

3
Sector, Industry, Thematic Analysis

We seek to identify the most attractive equity opportunities through our fundamental sector, industry and security analysis.

Our analysis of where we are and where we are heading in the macro cycle helps inform the portfolio positioning across sectors and industries. Coming out of a recession, we typically look to add to cyclicals and industries with high operating or financial leverage if they meet our rigorous fundamental criteria. As we move to later stages based on these cycles, we may begin to opportunistically take profits in some of these investments and position the portfolio more defensively.

4
Stock Selection

Our stock selection process focuses on specific fundamentals (such as earnings growth, pricing power, competitive landscape and returns on invested capital), valuation metrics and investment sentiment.

Within each market we select stocks that best capture our top-down investment case for that market. We invest in companies with solid and improving business fundamentals as well as quality management dedicated to expanding earnings growth. Our “sweet spots” on a growth/value continuum can be categorized as “Sustainable Growers” and “Compelling Value” opportunities.

10199214-AIA-Strategy-Graphic
 
 
Portfolio Manager  
Jitania Kandhari
Managing Director
24 years industry experience
 
 
 
 

RISK CONSIDERATIONS

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

Past performance is not a guarantee of future performance. There can be no assurance that the Strategy will achieve its investment objectives. Portfolios are subject to market risk, which is the possibility that the value of the investments and the income from them can go down as well as up and an investor may not get back the amount invested. 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 strategy. Please be aware that this strategy 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 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 securities may be more difficult to sell and value than public traded securities (liquidity risk). The use of futures includes the possible imperfect correlation between the price of futures contracts and movements in the prices of the securities being hedged, and the possible absence of a liquid secondary market for any particular investment. ESG Strategies that incorporate impact investing and/or Environmental, Social and Governance (ESG) factors could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. As a result, there is no assurance ESG strategies could result in more favorable investment performance.

From June 2003 to March 31, 2017, the strategy was managed by Ann Thivierge. From March 31, 2017 to June 30, 2017 the strategy was co-managed by Ann Thivierge, Munib Madni, Jitania Kandhari, and Ben Rozin.

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.

The views and opinions and/or analysis expressed are those of the author or the investment team as of the date of preparation of this material and are subject to change at any time without notice 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, after the date of publication. The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management (MSIM) and its subsidiaries and affiliates (collectively “the Firm”), 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 MSCI All Country World Ex-U.S. Index is a free float-adjusted market capitalization weighted index designed to measure the equity market performance of developed and emerging markets, excluding the U.S. 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 performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada.

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.

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

 

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