Emerging Markets Fixed Income Opportunities Strategy

Overview
Investment Approach
Portfolio Manager

Overview

Strategy Facts

Capability:	Fixed Income
Strategy Inception:	August 2015
Benchmark:	JPM BL 33 CEMBI 33 EMBI Global Div 33GBI-EM Glb Div

Strategy Facts

Capability:	Fixed Income
Strategy Inception:	August 2015
Benchmark:	JPM BL 33 CEMBI 33 EMBI Global Div 33GBI-EM Glb Div

Summary

The Emerging Markets Fixed Income Opportunities Strategy seeks to provide access to the full spectrum of Emerging Markets (EM) fixed income. The team seeks to identify the best investment opportunities across hard and local currency instruments, as well as sovereign and corporate issues by utilizing an approach that combines top-down macro assessment with rigorous bottom-up fundamental analysis. The strategy focuses on maximizing total return with a high level of current income, while at the same time maintaining potential capital appreciation.

Investment Approach

Philosophy

As Emerging Market (EM) economies have changed and developed over the past two decades, so too has the opportunity set available to fixed income investors. Given the impact of global macro themes and idiosyncratic factors on EM fixed income performance, it has never been more important for investors to have the flexibility to invest across the entire fixed income investment universe. An opportunistic approach which provides exposure to both foreign (U.S. dollar) and local currency fixed income assets, whether sovereign or corporate, could provide benefits such as:

· Return potential

· Lower volatility

· Holistic approach

Differentiators

BUILT FOR TODAY’S BOND MARKET

We are active managers with an exclusive focus on alpha generation, a scarce commodity in today’s bond markets dominated by large passive investors. We are also backed by the global resources of Morgan Stanley, which makes us the “best of both worlds” for clients – true alpha focus with the support of a major institution.

A MORE POWERFUL COVERAGE MODEL

Our corporate credit research analysts have a cohesive view of the market by covering the full credit spectrum, from investment grade to high yield. Our macro research analysts cover the global market, spanning developed markets through emerging markets. And our mortgage and securitized analysts cover the broad spectrum of global real estate and asset-backed securitizations.

ACCESS TO TENURED, WORLD-CLASS TALENT GLOBALLY

The portfolio managers on the Global Fixed Income team have an average of 25 years of investing experience and are focused on generating alpha. Our portfolio specialist team help design client solutions and keep portfolio managers connected to clients. Beyond seeking the best speed and efficiency in trade execution, our trading team thinks like investors with an average of 17 years investment experience.

Investment Process

1	Identify macro-fundamental drivers
	First the team conducts a top-down assessment of the global environment to determine how it interacts with economic fundamentals in emerging economies. The analysis of global and financial conditions, and their likely impact on EM fundamentals, helps to determine the overall risk positioning in the portfolio.
2	Derive thematic investment thesis
	Here the team identifies countries that exhibit positive fundamental rates of change using frameworks that meld economic, political and social assessments.
3	Evaluate investment opportunity set
	The team evaluates the opportunity set using a number of techniques that include sovereign analysis, currency, interest rate and yield curve analysis and credit analysis.
4	Security selection and portfolio construction
	The team’s models provide perspective on market valuations in different time periods, enabling them to identify potential mispricing and alpha opportunities. Each potential security is analyzed through a variety of 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.
5	Diversify and execute
	Risk management is integral to investment process. They place emphasis on diversification and the correlations between asset classes and concentrations of countries, themes, regions, sectors, and commodities.

Portfolio Manager

Sahil Tandon

Managing Director

20 years industry experience

Effective November 16, 2021, Eric Baurmeister is no longer serving as a portfolio manager on the Strategy.

Effective July 19, 2022, Brian Shaw and Akbar Causer have been added as Portfolio Managers to the Strategy. Warren Mar and Budi Suharto are no longer serving as Portfolio Managers to the Strategy.

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 value 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 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. High yield securities (“junk bonds”) are lower rated securities that may have a higher degree of credit and liquidity risk. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. The risks of investing in emerging marketcountries are greater than the risks generally associated with investments in foreign developed countries. Sovereign debt securities are subject to default risk. Derivative instruments can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on the portfolio’s performance. The use of leveragemay increase volatility in the Portfolio. Non-diversified portfolios often invest in a more limited number of issuers. As such, changes in the financial condition or market value of a single issuer may cause greater volatility. 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 Blended Index is comprised of 1/3 JP Morgan Emerging Markets Bond Global Index (tracks total returns for traded external debt instruments in the emerging markets, and is an expanded version of the EMBI+. As with the EMBI+, the EMBI Global includes US dollar-denominated Brady bonds, loans, and Eurobonds with an outstanding face value of at least $500 million), 1/3 JP Morgan GBI-EM Global Diversified Index (a comprehensive global local emerging markets index that consists of regularly traded, liquid fixed-rate, domestic currency government bonds and includes only the countries which give access to their capital market to foreign investors (excludes China, India). The index is market capitalization weighted, with a cap of 10% to any one country) and 1/3 JP Morgan CEMBI Broad Diversified Index (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.