European Short Maturity Strategy

Overview
Investment Approach

Overview

Strategy Facts

Capability:	Fixed Income
Strategy Inception:	August 1994
Benchmark:	Bloomberg Euro Aggregate: Treasury 1-3 Years Index

Strategy Facts

Capability:	Fixed Income
Strategy Inception:	August 1994
Benchmark:	Bloomberg Euro Aggregate: Treasury 1-3 Years Index

Summary

The European Short Maturity Strategy provides access to a diversified portfolio of high quality, Euro denominated fixed income securities. The strategy seeks to manage duration exposure to optimise the portfolio exposure to changes in interest rates. The strategy provides exposure to a broad array of issuer types beyond the realm of traditional liquidity funds. The team populate the portfolio with what they believe are the best ideas available within the short-dated Euro denominated, Investment Grade credit space.

Investment Approach

Philosophy

The team believe that the prolonged low yield environment presents a challenging backdrop to the short-term markets. Given negative yields on short dated investments, as well as on longer dated core European Government bonds, the team believe that investors should consider amending their investment parameters, to take on greater credit and duration risk, in order to help generate a positive return. The investment team believe their considered approach to investing in the European short-dated fixed income markets can provide investors with potentially higher return than a “traditional” short-dated solution, while seeking to preserve capital.

Differentiators

Active Approach:

The team’s rigorous investment process provides frameworks to assess value. The team actively manage the allocation between government and corporate bonds, as well as the overall duration of the portfolio.

Diversified Exposure:

The team populate the portfolio with what they believe are the best ideas within the short-dated Euro denominated, Investment Grade credit space.

Experienced Team:

The Global Fixed Income Team has managed the strategy for over 20 years.

Investment Process

1	Fundamental research:
	The team adopt a rigorous, fundamental research based approach that comprises of top-down asset allocation and bottom-up security selection, in order to help maximize alpha generation across the opportunity set. This active, disciplined and total return oriented investment process seeks to generate attractive returns throughout the entire market cycle. The team’s active approach provides the flexibility to take positions in both interest rates and currency. This allows the team to capitalise on additional market opportunities as and when they arise within the market.
2	Portfolio construction:
	The portfolio is populated with a diversified range of securities across the maturity spectrum that includes Government, Corporate and Supranational bonds. The team actively manage the allocation between each segment of the investment universe (for example, the allocation between Government and Corporate Bonds), as well as the overall duration of the portfolio. Portfolio construction remains entirely benchmark agnostic, the final portfolio reflects the team’s view of where the best opportunities in the market lie, and has no obligation to invest in areas of the benchmark that do not meet the team’s rigorous screening criteria.
3	Ongoing management:
	Ongoing portfolio management remains a critical component of the investment process. The team seek to manage duration exposure (typically +/- 1 year relative to the Bloomberg Euro Aggregate: Treasury 1-3 Years Index) to optimise portfolio exposure to changes in interest rates. Furthermore, ongoing risk management ensures that portfolio risk is mitigated, and that no single risk dominates the entire portfolio.

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 mutual fund will achieve its investment objective. Funds are subject to market risk, which is the possibility that the market values of securities owned by the fund will decline and that the value of fund 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 fund. Please be aware that this fund 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. 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. In addition to the risks associated with common stocks, investments in convertible securitiesare subject to the risks associated with fixed-income securities, namely credit, price and interest-rate risks. Currency fluctuations could erase investment gains or add to investment losses. 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 Bloomberg Euro Aggregate: Treasury 1-3 Years Index measures the performance of euro-denominated issues with maturities of one to three year. Inclusion is based on currency denomination of a bond and not country of risk of the issuer.

“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.