Strategies

Core Plus Fixed Income Strategy

Strategy Inception

December 1977

Asset Class

Multi-Sector

Quick Facts

Benchmark

Bloomberg U.S. Aggregate Index

Former Benchmark

MSCI Europe Index

Top

Overview

Overview
Investment Approach
Investment Process
Portfolio Managers
Insights

Overview

The Core Plus Fixed Income Strategy is a value-oriented fixed income strategy that invests primarily in a diversified mix of U.S. dollar-denominated investment-grade fixed income securities, particularly U.S. government, corporate and securitized assets including commercial mortgage-backed securities (CMBS), residential mortgage-backed securities (RMBS) and asset-backed securities (ABS). The strategy also has the flexibility to invest in below investment-grade bonds and non-U.S. dollar denominated bonds and currencies. To help achieve its objective, the strategy combines top-down macro and asset allocation views with rigorous bottom-up fundamental and quantitative analysis that guides team’s active management decisions.

Differentiators

CUSTOMIZATION

We deliver our fixed income expertise in a customized, solutions-based approach that seeks to optimize the application of our global resources to the investment objectives of the individual client. Our team is client-centric in all aspects of the relationship.

Right-Sized

As a nimble, midsize manager with a collaborative structure based on small teams of sector specialists, we are able to confidently implement differentiated investment themes across portfolios.

Extensive Resources of a Global Firm

Our culture of collaboration across fixed income teams in New York, London, Singapore and Tokyo enables us to take a truly global approach in identifying opportunities to capture returns in major markets worldwide.

Intensive Risk Management

We have been investing in fixed income assets since 1975 and have developed an intensive risk management framework that includes daily monitoring to ensure compliance with guidelines and to quantify portfolio risk exposures. At the firm level, our risk management team operates independently of business functions, which we believe provides us with a critical system of checks and balances.

Investment Approach

The team believes that markets can be inefficient and by performing rigorous analysis the team can position portfolios appropriately to add value over time. Bond prices reflect market forecasts for a variety of factors, such as economic growth, inflation, monetary policy, credit risk, and prepayment risk; yet markets tend to be poor forecasters of future events, especially when the implied market forecasts are out of line relative to historic trends. The team seeks to identify these mispricings and position client portfolios to exploit the value inherent in these opportunities.

The team believes that successful portfolio management depends on four factors:

Global Perspective
Valuation
Diversified Holdings
Deep Fundamental Research

Investment Process

Macro Analysis:

The team seeks to determine what themes are driving asset prices across rates, countries and currencies and to evaluate the investment opportunity set based on a thematic investment thesis. The top-down process uses a combination of fundamental and quantitative analysis to identify and evaluate these investment opportunities.

Asset Allocation:

The Asset Allocation team is led by Michael Kushma, the CIO of the Global Fixed Income team and is comprised of the heads of each research group. The team seeks to first, identify areas where implied market forecasts are out of line relative to historic trends and second, to identify the catalyst for the market to adjust. Internal debate is a key feature of our investing philosophy, ensuring investment ideas are tested thoroughly. The team debates relative value across sectors and determine broad strategy targets.

Research:

The team's approach to fixed income investing uses a disciplined investment process and a commitment to research. Research is conducted by dedicated teams specializing in a particular niche of the fixed income market. The research teams use in-depth fundamental analysis, complemented by quantitative tools, to generate bottom-up investment ideas and are responsible for security selection.

Portfolio Construction and Risk Management:

Portfolio managers are responsible for implementing the investment strategies. They work to construct each portfolio in a way that conforms to individual client/strategy guidelines and objectives, while staying true to the broad strategy targets that are set by the Asset Allocation team. The portfolio managers achieve these targets by working with the research analysts to fill the sector buckets with bottom-up security selection ideas.

The team views risk management as an integral part of our investment process. Based on this belief, they seek to protect their portfolios from a variety of risks through diversification, credit risk protection, and liquidity with the goal that no single risk dominates the portfolio.

Trading:

All fixed income trades are executed by centralized Global Fixed Income trading desk. Central dealing segregates the trading function away from the decision making process, and allows the portfolio managers to focus on managing the portfolio. This procedural separation helps ensure that all accounts are structured according to the parameters established by the team.

Portfolio Managers

Team Insights

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. 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 the current rising interest-rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. Longer-term securities may be more sensitive to interest rate changes. In a declining interest-rate environment, the portfolio may generate less income. Municipal securities are subject to early redemption risk and sensitive to tax, legislative and political changes. Mortgage- and asset-backed securities 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. High yield securities (“junk bonds”) are lower rated securities that may have a higher degree of credit and liquidity risk. Foreign securities are subject to currency, political, economic and market risks. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed markets. Public bank loans are subject to liquidity risk and the credit risks of lower rated securities. Derivative instruments can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on the portfolio’s performance. Restricted and illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk).

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 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.

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 Bloomberg U.S. Aggregate Index tracks the performance of all U.S. government agency and Treasury securities, investment-grade corporate debt securities, agency mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities.

“Bloomberg®” and the Bloomberg Index/Indices used are service marks of Bloomberg Finance L.P. and its affiliates, and have been licensed for use for certain purposes by Morgan Stanley Investment Management (MSIM). Bloomberg is not affiliated with MSIM, does not approve, endorse, review, or recommend any product, and. does not guarantee the timeliness, accurateness, or completeness of any data or information relating to any product.

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.