Market Pulse
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marzo 22, 2020
MS INVF Global Asset Backed Securities Fund: Global Coronavirus Update (March 20)
 

Market Pulse

MS INVF Global Asset Backed Securities Fund: Global Coronavirus Update (March 20)

MS INVF Global Asset Backed Securities Fund: Global Coronavirus Update (March 20)

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marzo 22, 2020

 
 

During this turbulent time the Global Securitized Team has made it a priority to keep investors as informed as possible with timely updates as the impacts of the coronavirus continue to unfold. The team continues to meticulously monitor the situation and the effects on securitized assets and is actively managing our portfolios as the story continues to develop.

 
 

The coronavirus has clearly roiled all markets in March, and the securitized markets, although having experienced these negative effects to a lesser extent than most fixed income sectors, are no exception. Spreads are widening significantly across all securitized credit asset classes, almost regardless of fundamental value. Even agency mortgage-backed securities (MBS) has underperformed this year as lower mortgage rates have increased prepayment concerns. The asset classes most directly impacted by the coronavirus have suffered the most, with aircraft asset-backed securities (ABS), hotel commercial mortgage-backed securities (CMBS), and shopping centre and retail-related CMBS among the worst performing asset classes; however, all securitized assets, excluding agency MBS, have felt the effects of increased pressure on liquidity, but to a lesser extent.

As mentioned in last week’s update, over the past year, we had been reducing risk and increasing the credit quality and liquidity of the portfolio by increasing our agency MBS, and AAA-rated positions. This was in response to the belief that credit risk was not being properly priced with sufficient risk premiums, and that the credit yield curve was essentially too flat. However, a monumental shift in these dynamics has occurred over the past few weeks as a result of coronavirus concerns, which has led to substantial repricing of credit risk and liquidity in the securitized sector.

As a result of this recalibration, we are finding many cheap opportunities across all securitized sectors, and have begun to slowly and cautiously look to add back risk to the portfolio in a highly selective manner, while keeping a watchful eye on liquidity; specifically, by selecting securities which we believe offer attractive risk adjusted returns in the current environment, in sectors which we believe to be the most resilient to any existing, or potential future effects of the coronavirus. Additionally the massive purchase program announced earlier this week by the European Central Bank (ECB) should act as a significant tailwind for European ABS and RMBS, and should be a significantly positive event for the portfolio given the Fund’s sizable position in European RMBS and ABS.

A few summarizing points on the Fund’s positioning and outlook:

  • The team is slowly and cautiously adding back risk to the portfolio, while keeping a watchful eye on liquidity.
  • The team is concentrating risk additions on sectors that we believe to be more resilient to the impacts of coronavirus, namely US and European residential mortgage-back securities (RMBS), as low mortgage rates, and the essential need for housing should keep these sectors well supported.
  • This new ECB purchase program should be a significantly positive event for European securitized assets and for the Fund its sizable allocation to European RMBS and ABS
  • The team is avoiding adding more troubled sectors such as Aircraft asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS) collateralised by hotels and retail shopping centres which should be more substantially impacted by the coronavirus fears.
  • The Fund has reduced its interest rate duration positioning this year as we believe it is more likely for rates to move higher from current levels than to move lower.

The MS INVF Global Asset Backed Securities Fund continues to maintain a relatively short interest duration and spread duration position, which has helped the Fund perform better than many comparable funds and other fixed income asset classes during this period of high volatility. The Fund’s investment approach is to generate returns from the cashflow carry of the securities, rather than mark-to-market moves, and therefore the Fund has held up better and should be more resilient to market moves. We believe the fundamental cashflow performance of the Fund’s securities to fare relatively well, despite coronavirus impacts, given the significant levels of structural credit protection in these securities resulting from the stress test of the financial crisis, and the robust fundamentals of the Fund’s underlying securities.

With assets having cheapened meaningfully, we believe the fund is positioned to perform well going forward and that it offers better fundamental credit risk than many other fixed income sectors. The Morgan Stanley Global Securitized team takes a very active approach to investing and we will continue to navigate this turbulent market with the primary goal being to deliver the best risk adjusted returns our investors.

 

 

 
 

RISK WARNING

The value of bonds are likely to decrease if interest rates rise and vice versa. The value of financial derivative instruments are highly sensitive and may result in losses in excess of the amount invested by the Sub-Fund. Issuers may not be able to repay their debts, if this happens the value of your investment will decrease. This risk is higher where the fund invests in a bond with a lower credit rating. The fund relies on other parties to fulfil certain services, investments or transactions. If these parties become insolvent, it may expose the fund to financial loss. There may be an insufficient number of buyers or sellers which may affect the funds ability to buy or sell securities. Investment in Fixed Income Securities via the China Interbank Bond Market may also entail additional risks, such as counterparty and liquidity risk. There are increased risks of investing in emerging markets as political, legal and operational systems may be less developed than in developed markets. Past performance is not a reliable indicator of future results. Returns may increase or decrease as a result of currency fluctuations. The value of investments and the income from them can go down as well as up and investors may lose all or a substantial portion of his or her investment. The value of the investments and the income from them will vary and there can be no assurance that the Fund will achieve its investment objectives. Investments may be in a variety of currencies and therefore changes in rates of exchange between currencies may cause the value of investments to decrease or increase. Furthermore, the value of investments may be adversely affected by fluctuations in exchange rates between the investor’s reference currency and the base currency of the investments.

 
 
 
The Global Fixed Income team follows a seamless process with a global outlook. They seek to identify and capture the potential value in situations where the market's implied forecasts are extreme.
 
 
 
 
 

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Ireland: Morgan Stanley Investment Management (Ireland) Limited. Registered Office: The Observatory, 7-11 Sir John Rogerson's Quay, Dublin 2, Ireland. Registered in Ireland under company number 616662. Regulated by the Central Bank of Ireland. United Kingdom: Morgan Stanley Investment Management Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No. 1981121. Registered Office: 25 Cabot Square, Canary Wharf, London E14 4QA. Dubai: Morgan Stanley Investment Management Limited (Representative Office, Unit Precinct 3-7th Floor-Unit 701 and 702, Level 7, Gate Precinct Building 3, Dubai International Financial Centre, Dubai, 506501, United Arab Emirates. Telephone: +97 (0)14 709 7158). Germany: Morgan Stanley Investment Management Limited Niederlassung Deutschland, Grosse Gallusstrasse 18, 60312 Frankfurt am Main, Germany (Gattung: Zweigniederlassung (FDI) gem. § 53b KWG). Italy: Morgan Stanley Investment Management Limited, Milan Branch (Sede Secondaria di Milano) is a branch of Morgan Stanley Investment Management Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA), and whose registered office is at 25 Cabot Square, Canary Wharf, London, E14 4QA. Morgan Stanley Investment Management Limited Milan Branch (Sede Secondaria di Milano) with seat in Palazzo Serbelloni Corso Venezia, 16 20121 Milano, Italy, is registered in Italy with company number and VAT number 08829360968. The Netherlands: Morgan Stanley Investment Management, Rembrandt Tower, 11th Floor Amstelplein 1 1096HA, Netherlands. Telephone: 31 2-0462-1300. Morgan Stanley Investment Management is a branch office of Morgan Stanley Investment Management Limited. Morgan Stanley Investment Management Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Switzerland: Morgan Stanley & Co. International plc, London, Zurich Branch, authorised and regulated by the Eidgenössische Finanzmarktaufsicht ("FINMA"). Registered with the Register of Commerce Zurich CHE-115.415.770. Registered Office: Beethovenstrasse 33, 8002 Zurich, Switzerland, Telephone +41 (0) 44 588 1000. Facsimile Fax: +41(0)44 588 1074.

IMPORTANT INFORMATION
EMEA: This marketing communication has been issued by Morgan Stanley Investment Management Limited (“MSIM Ltd”). Registered Office: 25, Cabot Square, London E14 4QA Regulated by FCA.

This table contains information relating to the sub-funds of Morgan Stanley Investment Funds, a Luxembourg domiciled Société d’Investissement à Capital Variable. Morgan Stanley Investment Funds (the “Company”) is registered in the Grand Duchy of Luxembourg as an undertaking for collective investment pursuant to Part 1 of the Law of 17th December 2010, as amended. The Company is an Undertaking for Collective Investment in Transferable Securities (“UCITS”).

Applications for shares in the sub-funds should not be made without first consulting the current Prospectus, Key Investor Information Document ("KIID"), Annual Report and Semi-Annual Report (“Offering Documents”), or other documents available in your local jurisdiction which is available free of charge from the Registered Office: European Bank and Business Centre, 6B route de Trèves, L-2633 Senningerberg, R.C.S. Luxemburg B 29 192. In addition, all Italian investors should refer to the ‘Extended Application Form’, and all Hong Kong investors should refer to the ‘Additional Information for Hong Kong Investors’ section, outlined within the Prospectus. Copies of the Prospectus, KIID, the Articles of Incorporation and the annual and semi- annual reports, in German, and further information can be obtained free of charge from the representative in Switzerland. The representative in Switzerland is Carnegie Fund Services S.A., 11, rue du Général-Dufour, 1204 Geneva. The paying agent in Switzerland is Banque Cantonale de Genève, 17, quai de l’Ile, 1204 Geneva. The document has been prepared solely for informational 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 views and opinions expressed are those of the portfolio management team at the time of writing/of this presentation and are subject to change at any time due to market, economic, or other conditions, and may not necessarily come to pass. These comments are not representative of the opinions and views of the firm as a whole. Holdings, countries and sectors/ region weightings are subject to change daily. All information provided is for informational purposes only and should not be deemed as a recommendation to buy or sell securities in the sectors and regions referenced. Information regarding expected market returns and market outlook is based on the research, analysis, and opinions of the team. These conclusions are speculative in nature, may not come to pass, and are not intended to predict the future of any specific Morgan Stanley Investment Management investment. Past performance is no guarantee of future results.

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The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the applicable European or Swiss regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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This document may be translated into other languages. Where such a translation is made this English version remains definitive. If there are any discrepancies between the English version and any version of this document in another language, the English version shall prevail. 

 

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