Global Buy and Maintain Credit Strategy
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Global Buy and Maintain Credit Strategy |
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Global Buy and Maintain Credit Strategy
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Global Buy and Maintain Credit Strategy
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The investment team believes that global credit markets present conditions that can be effectively exploited using a strategy with the flexibility to deviate from benchmark allocations. Owing to their composition, credit benchmarks may, over time, become skewed in favour of companies with the greatest overall debt commitments. Favouring companies and sectors with the largest outstanding debt may adversely affect the volatility of an investment portfolio, which in turn may influence the risk-adjusted returns of long term investors.
The team believes that rigorous bottom-up credit research applied within a benchmark agnostic strategy can produce a portfolio of strong credit ideas but which is designed to avoid unwanted country, sector or issuer concentrations. Given the current liquidity constrained environment, we believe long term investors in a portfolio of undervalued issuers may have the opportunity to exploit these pricing inefficiencies and earn superior returns over the long term.
The team believes that successful credit management depends on four factors:
- A value-driven process
- Forward-looking credit analysis
- Broad diversification to reduce portfolio risk
- A global approach
Customization: |
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The team delivers fixed income expertise in a customized, solutions-based approach that optimizes the application of the team's global resources to the investment objectives of the individual client. The team is client-centric in all aspects of the relationship. |
Right-Sized: |
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As a mid-sized asset manager, the team has the depth and breadth of resources to provide our clients with options ranging from highly customized strategies to standardized fund options. The team benefits from a collaborative structure based on small team of sector specialists enabling the team to confidently implement investment themes across portfolios. |
Extensive Resources of a Global Firm: |
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Morgan Stanley Investment Management has a cohesive team of fixed income specialists in New York, London, Singapore and Tokyo who can identify opportunities to capture returns in all major markets worldwide. They bring together an impressive range of market experience, intellectual rigour and academic achievements. |
Intensive Risk Management: |
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At the strategy level, the team integrates daily monitoring that ensures compliance with guidelines and quantifies portfolio risk exposures. At the firm level, the risk management team operates independently of the business functions. |
| 1 | Macro analysis: |
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The process begins with a top-down value assessment of the corporate bond universe, including a consideration of macroeconomic conditions, the corporate earnings environment and relative valuations. The team examines swap spreads as a proxy for the liquidity premium embedded within corporate spreads, and assesses factors such as leverage and asset volatility (which drive both equity volatility and default spreads) as an indicator of future default expectations. |
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| 2 | Screening: |
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The team uses quantitative tools and signals to complement their fundamental research and enhance their process. An example of this is the use of Moody’s Credit Edge, an industry leading Merton-based structural model. The output offers the ability to to screen and compare credits, model events and monitor portfolio risk. |
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| 3 | Credit analysis: |
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The team focuses on financial risk, business risk and management ability/intentions. When analysing business risk, the team assesses a company’s competitive position, its diversification and growth potential, the value of its franchise and the flexibility of its business model in terms of the variability of its cost structure. Financial risk involves an examination of a company’s financial statements to assess the suitability of the company’s capital structure for the risk entailed in its business. The team’s forward-looking proprietary cash flow models enable them to understand the likely future financial profile. The group also seeks to understand management’s intentions, in terms of business development and capital structure, and ability to execute. |
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| 4 | Valuation analysis: |
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The team’s credit analysis narrows the universe to approximately 200 to 300 investment candidates on which a relative valuation assessment is conducted. The team derives a "fair value" spread for each bond that is compared to the market spread to determine a bond’s under/overvaluation. |
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| 5 | Portfolio construction and ongoing maintenance: |
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A portfolio of 80 to 120 issuers is constructed, with sector allocation driven primarily by bottom-up security selection (subject to the team’s risk management guidelines). Integral to the team’s portfolio construction process is the measurement and monitoring of market risk, duration and volatility, and credit risk through the use of proprietary risk measures and proprietary models. The team monitors all credits in the portfolio in several ways: quantitative signals from proprietary models, market spread changes and regular formal and informal discussions and reviews. |
Effective 16 December 2022, Dipen Patel and Stella Ma were added as Portfolio Managers on the Strategy and Chris Roth is no longer serving as Portfolio Manager on the Strategy.
Effective 30 August 2024, Richard Ford is no longer serving as Portfolio Manager, and Dipen Patel and Stella Ma were added as Portfolio Managers on the Portfolio.