Strategies

Emerging Markets Corporate Debt Strategy

Strategy Inception

November 2010

Asset Class

Emerging Markets Debt

Quick Facts

Benchmark

JP Morgan Corporate Emerging Markets Bond Index Broad Diversified

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Overview

Overview
Investment Approach
Investment Process
Portfolio Managers
Insights

Overview

The Emerging Markets Corporate Debt Strategy is a value-oriented fixed income strategy that seeks to maximize total return from income and price appreciation by primarily investing across the credit spectrum in the debt securities of emerging market corporate issuers. Investments are mostly denominated in U.S. currency, and include non-U.S. and/or local currencies. To help achieve its objective, the team follows a disciplined investment process that combines top-down country allocation with bottom-up credit analysis to identify undervalued Emerging Markets Corporate Debt securities.

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 an agile, mid-sized 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 generally looks to take advantage of investment opportunities across corporate, quasi-sovereign and to a lesser extent sovereign debt securities from Emerging Markets countries experiencing positive fundamental change. EM Corporate Debt seeks to provide investors the opportunity to capitalize on this progress as local companies become leaders in their domestic markets and relevant in the global credit arena.

The team aims to capture the upside potential of Emerging Market Corporate Debt securities through:

Country and Security Analysis
Value Orientation
Credit Analysis

Investment Process

Macro analysis

The team begins with a top-down analysis of the global macro environment, its impact on EM, and the market’s appetite for risk. The output of the analysis is an overall risk target for all of our portfolios relative to their respective benchmarks.

Sovereign analysis

The team’s objective is to analyze credit opportunities in countries identified as those exhibiting positive rates of change using frameworks that meld economic, political, and social assessments. In this process the team extends its analysis to determine how these factors may positively influence the overall business environment and support the credit worthiness of companies.

Credit analysis and industry outlook

The team reviews a variety of metrics to evaluate the credit worthiness of specific issuers taking into consideration the team’s sovereign views and additionally, the industry outlook for each issuer.

Security selection and portfolio construction

The team’s models provide perspective on market valuations in different cycles and time periods, enabling them to identify potential mispricing and alpha opportunities. Each potential security is analyzed through a variety of credit and valuation metrics. The team uses a Positioning & Sizing framework that takes into consideration the total return potential of investment alternatives, the volatility of returns and correlation of such potential positions to assess risk, and a conviction factor about the return/risk trade-off based on a comprehensive review of event risk (including near-term political factors) and the market technicals such as planned issuance, investors’ positioning, and outlook for asset class flows.

Risk management

Risk management is integrated throughout the team’s investment process. An independent team also monitors portfolio adherence to guidelines, overall risk levels, and composition.

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. 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. 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. Investments in foreign marketsentail 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. When investing in value securities, the market may not have the same value assessment as the manager, and, therefore, the performance of the securities may decline.

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 JP Morgan CEMBI Broad Diversified Index is a global, liquid corporate emerging-markets benchmark that tracks U.S.-denominated corporate bonds issued by emerging-markets entities.

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.