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1 Page
For Business and Professional Investors Only
Morgan Stanley Investment Management
High Yield in a low yield world:
Still an opportunity
March 2013
2 Page
For Business and Professional Investors Only
MSIM Assets Under Management
33%
35%
18%
14%
U.S. Fixed Income
Global Fixed Income
Emerging Markets Debt
European Fixed Income
$338 billion in assets firm wide
Fixed Income Assets Under Management
• Over $160 billion in fixed income &
money market assets firm wide
• Approximately $61 billion in fixed income assets:
– Global Fixed Income: $20 billion
– European Fixed Income: $9 billion
– Emerging Markets: $10 billion
– US Fixed Income: $22 billion
Data as of December 31, 2012
Figures are quoted as of December 31, 2012. Morgan Stanley Investment Management (MSIM) is the asset management division of Morgan Stanley. Assets are managed by teams representing different MSIM legal entities; portfolio management teams are primarily located in New York, Philadelphia, London, Amsterdam, Singapore and Mumbai offices. Figure represents MSIM’s total assets under management/supervision.
234963
3 Page
For Business and Professional Investors Only
Why is High Yield still an opportunity?
One of a few assets offering positive real yield in a low growth world:
• Monetary policy and regulation combining to suppress real yields of higher rated government and
corporate bonds
• Central banks providing liquidity on an unprecedented scale
• High real yielding assets will remain in demand whilst this supportive backdrop remains
Macro environment remains supportive of High Yield:
• Historically a low growth economic backdrop has been positive for High Yield returns
• Company management remain conservative when faced with an uncertain economic outlook
• Sound credit fundamentals and easy access to liquidity should combine to keep default rates low
4 Page
For Business and Professional Investors Only
Why MSIM High Yield?
Our strategy provides investors the opportunity for:
• Improved diversification and alpha generation through security selection
• Higher volatility adjusted returns
• Greater liquidity in a broader market
• Capitalizing on valuation and mispricing in different sectors and geogrpahies
MSIM’s Global Fixed Income team has a truly global approach:
• Portfolio managers and researchers based in Europe, the US and Asia
• Portfolio management team consists of Richard Lindquist (global head of High Yield), Leon Grenyer
(head of European High Yield) and Christian Roth (head of Global Credit)
• Our investment philosophy, structure and culture of debate enables us to take advantage of market
opportunities in a timely fashion
5 Page
For Business and Professional Investors Only
MSIM’s High Yield Resources
MSIM’s High Yield Team
• Richard Lindquist – Global Head of High Yield
– Over 28 years of experience in the high yield markets
• Leon Grenyer –Head of European High Yield
– Over 16 years of experience in the high yield markets
• Team of 16 dedicated research analysts
– Based in New York, London and Singapore to provide global coverage
• Team of 5 dedicated credit traders in New York and London
– Jack Cimarosa (New York) – joined MSIM from Guggenheim Partners where he worked closely
with Rich in managing high yield portfolios
• Additional resources available to the team
– Asset Allocation Team develops strategy across portfolios
– Macro Team provides guidance on broad economic themes
– Quantitative Research Team develops and maintains models
– Portfolio Construction Team ensures portfolios are managed according to client guidelines
6 Page
For Business and Professional Investors Only
#sam.asset.id#
Global Credit Research Coverage
Well Resourced and Experienced Global Credit Team
Sector Credit Research Global Coverage
Aerospace & Defense / Conglomerates / Machinery Matt Millsfield / Leon Grenyer
Airlines / Auto Parts / Rails / Transportation Matt Millsfield / Leon Grenyer / Mohammed Fayek
Banks Ryan O’Connell / Alice La Trobe-Weston / Nick Dimitrov
Brokers / Agencies / ABCP / State-Sponsored European Banks Lois Pine
Cable / Media / Telecom / Information Technology Anuj Gulati / Cristian Ghiuvea / Ola Heldal
Chemicals / Energy / Paper & Packaging Lei Wang / Leon Grenyer
Electronics Cristian Ghiuvea / Leon Grenyer
Emerging Markets/Asian Corporates Chris Lin
Emerging Markets Corporates Warren Mar / Juliet Lim
Finance Companies Nick Dimitrov
Food, Beverage & Tobacco Anuj Gulati / Sarah Singh / Mohammed Fayek
Gaming & Lodging / Homebuilding / Services Matthew Millsfield / Mohammed Fayek
Healthcare Anuj Gulati / Mohammed Fayek
Insurance Nick Dimitrov
Metals / Mining Lei Wang / Leon Grenyer
Quantitative Modeling Mikhael Breiterman-Loader
REITs Cristian Ghiuvea
Retail – Food / Drug / Other Nicolas Peña / Sarah Singh
Sovereigns Ryan O’Connell
Utilities Nicolas Peña / Sarah Singh
Key Team Members
Rich Lindquist Global High Yield
Leon Grenyer Euro High Yield
Chris Roth Global Credit
Ric Ford European Credit
Each analyst / portfolio manager concentrates on 2 to 3 industries, focusing their research on approximately 40-50 companies.
New York based investors research US companies, while our London-based investors conduct research on non-US issuers.
7 Page
For Business and Professional Investors Only
Portfolio Construction
Guideline Monitoring and Risk Management
Fundamental
Screens Credit
Analysis
Relative
Valuation
Analysis
Buy/Sell
Discipline
Client
Portfolio
Client’s
Objectives,
Guidelines,
and
Benchmark
Macro analysis : Economic environment and valuation
A consistent process focused on
bottom-up security selection
Ongoing macro analysis to
optimise portfolio beta positioning
Risk management is integrated
into our investment process
8 Page
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Portfolio Characteristics
Guidelines for our High Yield portfolios
• Portfolios well-diversified at issuer and industry levels
– Typically hold up to 125 issues
– Single-name exposures generally limited to 2%
– Industry sectors generally limited to 3x the index weight for sectors < 5% of the index and 2x the
index weight for sectors > 5% of the index, subject to a maximum of 25%
– Cash holdings typically 0-5% (generally to accommodate flows)
• Returns expected to depend heavily on our fundamental credit analysis
– 80-85% of portfolio return typically from bottom-up security selection
– 15-20% typically from top-down sector allocation
• Sector rotation generally takes place as our view of the economic cycle changes
• Annual portfolio turnover expected to be typically 35-40%
• Focus on middle market credits, with $200 million to $1 billion of total debt outstanding
– 15-20% typically invested in the top 100 largest high yield issuers
– 80-85% of the portfolio typically invested in middle market issuers
Past performance is not indicative of future results. The statements above represent how the portfolio management team generally implements its investment process under normal market conditions.
9 Page
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Middle Market High Yield
Typically, middle market issues will provide:
• Superior yields
• Higher coupons
• Shorter maturities
• Lower volatility
• Default rates in line with broader market
The higher coupons and shorter
maturities of middle market issuers
typically translate into lower duration,
which we view as attractive during
the current period of macro risk and
rate volatility
During a typical sell-off, the hard-to-
find nature of smaller middle market
deals usually makes them less likely
to be sold
Middle market issuers have
outperformed the broader market
with lower volatility and made
portfolios risk / return profiles more
attractive
Cumulative Return vs Issue Size
-40%
-20%
0%
20%
40%
60%
80%
100%
Apr-01 Mar-03 Feb-05 Jan-07 Dec-08 Nov-10
$150-200mn $250-300mn $400-500mn $750-1,000mn
Spread Volatility vs Issue Size
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
Oct-00 Nov-02 Dec-04 Jan-07 Feb-09 Mar-11
$150-200mn $250-300mn $400-500mn $750-1,000mn
Source: Barclays Capital. Data through June 30, 2012. Cumulative returns shown are not compounded. Spread volatility shown is annualized rolling 3 month daily spread volatility Past performance is not indicative of future results.
10 Page
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MS INVF Global High Yield Fund
11 Page
For Business and Professional Investors Only
MS INVF Global High Yield Bond Product Summary
Index (Beta) • Barclays Global High Yield Index
Credit Risk
(Alpha Source)
• Issuer : Index plus 200bp
• Sector : Industry sectors generally limited to 3x the index weight for
sectors < 5% of the index and 2x the index weight for sectors > 5% of
the index, subject to a maximum of 25%
Currency • Base currency of the fund is a blend of USD, Euro and GBP
Duration • +/- 1 year
Derivatives • Can use derivatives (futures/swaps) consistent with
investment guidelines/UCITS3
1. Applications for shares in any Morgan Stanley INVF should not be made without first consulting the current Prospectus, Key Investor Information Document ("KIID"), Annual Report and Semi-Annual Report (“Offering Documents”), or other documents available in your local jurisdiction which are available free of charge at the address above.
12 Page
For Business and Professional Investors Only
Note: • Barclays Capital Global High Yield Index
Eff. Dur. Spr. Dur. OAS YTM Rating Beta
Portfolio 3.89 3.87 592 6.83 B 1.12
Index1 3.86 3.96 488 5.79 B+
Net 0.03 -0.10 104 1.05
Source: Morgan Stanley Investment Management
1. Applications for shares in any Morgan Stanley INVF should not be made without first consulting the current Prospectus, Key Investor Information Document (“KIID”), Annual Report and Semi-Annual Report (“Offering Documents”), or other documents available in your local jurisdiction which are available free of charge at the address above.
2. This information reflects the views of the portfolio management team. These views may change without notice as circumstances or market conditions change. All information is provided for informational purposes only and should not be construed as a recommendation to purchase or sell the securities mentioned.
Risk Summary
As of February 28th, 2013
MS INVF Global High Yield Bond Fund
13 Page
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MS INVF Global High Yield Bond Fund As of February 28th, 2013
Sector Exposures
Source: Morgan Stanley Investment Management
1. Applications for shares in any Morgan Stanley INVF should not be made without first consulting the current Prospectus, Key Investor Information Document (“KIID”), Annual Report and Semi-Annual Report (“Offering Documents”), or other documents available in your local jurisdiction which are available free of charge at the address above.
2. This information reflects the views of the portfolio management team. These views may change without notice as circumstances or market conditions change. All information is provided for informational purposes only and should not be construed as a recommendation to purchase or sell the securities mentioned.
14 Page
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MS INVF Global High Yield Bond Fund As of February 28, 2013
Source: Morgan Stanley Investment Management
1. Applications for shares in any Morgan Stanley INVF should not be made without first consulting the current Prospectus, Key Investor Information Document (“KIID”), Annual Report and Semi-Annual Report (“Offering Documents”), or other documents available in your local jurisdiction which are available free of charge at the address above.
2. This information reflects the views of the portfolio management team. These views may change without notice as circumstances or market conditions change. All information is provided for informational purposes only and should not be construed as a recommendation to purchase or sell the securities mentioned.
Region & Countries
15 Page
For Business and Professional Investors Only
As of February 28th, 2013
MS INVF Global High Yield Bond Fund
Credit Quality
Source: Morgan Stanley Investment Management
1. Applications for shares in any Morgan Stanley INVF should not be made without first consulting the current Prospectus, Key Investor Information Document (“KIID”), Annual Report and Semi-Annual Report (“Offering Documents”), or other documents available in your local jurisdiction which are available free of charge at the address above.
2. This information reflects the views of the portfolio management team. These views may change without notice as circumstances or market conditions change. All information is provided for informational purposes only and should not be construed as a recommendation to purchase or sell the securities mentioned.
16 Page
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MS INVF Global High Yield Bond Fund Presented in USD terms
(0.3)
2.9
5.7
16.4
21.3
(0.3)
1.3
3.4
12.4
16.6
-2
3
8
13
18
23
February YTD 3 Months 1 Year Since Inception
Perc
ent
(%)
MS INVF Global High Yield Bond Fund (gross) Barclays Capital Global High Yield Index
Performance Returns1 as of February 28th, 2013 The inception date of the MS INVF Global High Yield Bond Fund is November 18, 2011
1. Past performance should not be construed as a guarantee of future performance. Performance returns reflect the average annual rates of return. Periods less than one year are not annualized. The performance results shown are presented GROSS of investment advisory fees and include the reinvestment of dividends and income. Had fees been included, returns would be lower. The comparison index is the Barclays Capital Global High Yield Index. Individual results will vary.
2. Applications for shares in any Morgan Stanley INVF should not be made without first consulting the current Prospectus, Key Investor Information Document (“KIID”), Annual Report and Semi-Annual Report (“Offering Documents”), or other documents available in your local jurisdiction which are available free of charge at the address above.
17 Page
For Business and Professional Investors Only
MS INVF European Currencies High Yield
Fund
18 Page
For Business and Professional Investors Only
MS INVF Euro Currencies High Yield Bond Product
Summary
Index (Beta) • BoA Merrill Lynch European Currency High Yield
Constrained Ex Sub Financials (HPS2)
Credit Risk
(Alpha Source)
• Issuer : Index plus 200bp
• Sector : Industry sectors generally limited to 3x the index weight for
sectors < 5% of the index and 2x the index weight for sectors > 5% of
the index, subject to a maximum of 25%
Non Euro Denominated
Corporates, Currency risk
hedged (Alpha Source)
• Base currency of the fund is Euro
• Can buy bonds in non Euro currencies (Currency risk
hedged)
Duration • +/- 1 year
Derivatives • Can use derivatives (futures/swaps) consistent with
investment guidelines/UCITS3
1. Applications for shares in any Morgan Stanley INVF should not be made without first consulting the current Prospectus, Key Investor Information Document ("KIID"), Annual Report and Semi-Annual Report (“Offering Documents”), or other documents available in your local jurisdiction which are available free of charge at the address above.
19 Page
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MS INVF Euro Currencies High Yield Fund: Risk
Summary As of February 28, 2013
1. BoA ML Euro Currencies High Yield ex subordinated financials index 2. Applications for shares in any Morgan Stanley INVF should not be made without first consulting the current Prospectus, Key Investor Information
Document ("KIID"), Annual Report and Semi-Annual Report (“Offering Documents”), or other documents available in your local jurisdiction which are available free of charge at the address above.
Duration Spr. Dur. OAS YTM Rating Beta
Portfolio 3.17 3.73 527 5.63 B+ 1.25
Index1 3.15 3.16 481 5.37 BB-
Net 0.02 0.57 45 0.26
20 Page
For Business and Professional Investors Only
1. Applications for shares in any Morgan Stanley INVF should not be made without first consulting the current Prospectus, Key Investor Information Document ("KIID"), Annual Report and Semi-Annual Report (“Offering Documents”), or other documents available in your local jurisdiction which are available free of charge at the address above.
2. This information reflects the views of the portfolio management team as of February 28, 2013. These views may change without notice as circumstances or market conditions change. All information is provided for informational purposes only and should not be construed as a recommendation to purchase or sell the securities mentioned.
MS INVF Euro Currencies High Yield Fund:
Sector Positions Exposure as of February 28, 2013
Source: Blackrock, Morgan Stanley Investment Management
Note: BoA ML European Currencies High Yield ex Subordinated Financials Index
21 Page
For Business and Professional Investors Only
1. Applications for shares in any Morgan Stanley INVF should not be made without first consulting the current Prospectus, Key Investor Information Document (“KIID”), Annual Report and Semi-Annual Report (“Offering Documents”), or other documents available in your local jurisdiction which are available free of charge at the address above.
2. This information reflects the views of the portfolio management team as of February 28, 2013. These views may change without notice as circumstances or market conditions change. All information is provided for informational purposes only and should not be construed as a recommendation to purchase or sell the securities mentioned.
MS INVF Euro Currencies High Yield Fund :
Regional Exposure Exposure as of February 28, 2013
Source: Blackrock, Morgan Stanley Investment Management
Note: BoA ML European Currencies High Yield ex Subordinated Financials Index
22 Page
For Business and Professional Investors Only
1. Applications for shares in any Morgan Stanley INVF should not be made without first consulting the current Prospectus, Key Investor Information Document (“KIID”), Annual Report and Semi-Annual Report (“Offering Documents”), or other documents available in your local jurisdiction which are available free of charge at the address above.
2. This information reflects the views of the portfolio management team as of February 28, 2013. These views may change without notice as circumstances or market conditions change. All information is provided for informational purposes only and should not be construed as a recommendation to purchase or sell the securities mentioned.
MS INVF Euro Currencies High Yield Fund :
Peripheral Exposure Exposure as of February 28, 2013
Source: Blackrock, Morgan Stanley Investment Management
Note: BoA ML European Currencies High Yield ex Subordinated Financials Index
23 Page
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1. Applications for shares in any Morgan Stanley INVF should not be made without first consulting the current Prospectus, Key Investor Information Document (“KIID”), Annual Report and Semi-Annual Report (“Offering Documents”), or other documents available in your local jurisdiction which are available free of charge at the address above.
2. This information reflects the views of the portfolio management team as of Februrary 28, 2012. These views may change without notice as circumstances or market conditions change. All information is provided for informational purposes only and should not be construed as a recommendation to purchase or sell the securities mentioned.
MS INVF Euro Currencies High Yield Fund :
Ratings Exposure as of February 28, 2013
Source: Blackrock, Morgan Stanley Investment Management
Note: BoA ML European Currencies High Yield ex Subordinated Financials Index
24 Page
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Euro Currencies High Yield Bond Strategy European Currencies High Yield Representative Account – Presented in EUR terms
1. Past performance should not be construed as a guarantee of future performance. Performance returns reflect the average annual rates of return. Periods less than one year are not annualized. The performance results shown are based on the strategy’s representative account, presented GROSS of investment advisory fees, and include the reinvestment of dividends and income. Had fees been included, returns would be lower. The comparison index is the BoA Merrill Lynch European Currency High Yield Constrained Ex Sub Financials (HPS2) Index. Individual results will vary.
2. Applications for shares in any Morgan Stanley INVF should not be made without first consulting the current Prospectus, Key Investor Information Document (“KIID”), Annual Report and Semi-Annual Report (“Offering Documents”), or other documents available in your local jurisdiction which are available free of charge at the address above.
Index (Beta)
BoA Merrill Lynch European Currency
High Yield Constrained Ex Sub
Financials (HPS2)
Credit Risk (Alpha Source)
Issuer : Index plus 200bp
Sector : Index +/- 10%
Non Euro Denominated Corporates,
Currency risk hedged (Alpha
Source)
Base currency of the fund is Euro
Can buy bonds in non Euro currencies
(Currency risk hedged)
Duration Risk
+/- 1 year
Derivatives
Can use derivatives (futures/swaps)
consistent with investment
guidelines/UCITS3
AUM: €549 million (02/28/13)
Available Vehicles:
SICAV Pooled Vehicle
Separate Account
1.27 1.02
3.37
11.2311.66
10.40
2.79
0.70 0.83
2.89
14.56
11.3010.84
9.61
4.96
15.98
-2
0
2
4
6
8
10
12
14
16
18
February YTD 3 Months 1 Year 3 Years 5 Years 10 Years Since Inception
Perf
orm
ance (
%)
European Currencies High Yield Representative Account (Gross)
BoA Merrill Lynch European Currency High Yield Constrained Index excl Sub Financials
Performance Returns1 as of February 28th, 2013 The inception date of the European Currencies High Yield Representative Account is December 14, 1998
25 Page
For Business and Professional Investors Only
53985
Current High Yield Bond Strategy (March 2013)1
Current Themes
• Focus on B-rated issuers
• Identifying winners and avoiding losers is key to outperformance
• Underweight issuers with a large percentage of European-related business
• Target industrials with pricing power and ability to pass through raw material inflation. See risks to margins.
• Overweight quality middle market issuers that offer a yield advantage over the largest high yield issuers
• Event risk often positive to High Yield, e.g. re-equitization: IPO / shareholder contributions / asset sales
• M&A: potential to be bought by cash-rich IG companies
Sector Choice
• Overweights: Packaging,, Aerospace, Building Materials, Gaming, Cyclical Consumer Services, Consumer Products, Food and Beverage Transportation Services
• Underweights: Metals and Mining, Paper, Media, Wirelines, Airlines, Home Construction, Energy, Utilities,
Good Fundamentals Dependent on Eurozone
• Slow global economic recovery; economic data plateaus
• Eurozone will still dominate headlines
• China growth important to global demand, but moderating
• Monetary policy easy; fiscal policies tighter
• 4Q12 Earnings mixed
• Default rates low, expected to remain low in 2013
Forward Indicators Mixed
• Global Confidence indicators diverging
• Austerity plans a likely drag on growth in Europe • Bank deleveraging to impact growth
• Moderate US GDP growth of around +2% for 2013
• Continued high unemployment, improving housing market
• China slowdown, global growth implications
Technicals Still Positive
• Demand for credit strong; net new corporate supply moderate
• Dealer balance sheets significantly reduced
• Price moves exaggerated by thin trading
Valuation Remains Attractive
• Spreads still attractive on a leverage-adjusted basis
• Implied default rates much higher than actual defaults
1. This information reflects the views of the portfolio manager as of the date noted above, and is subject to change without notice in response to changing circumstances and market conditions. This information should not be construed as investment advice and should not be deemed a recommendation to buy or sell any strategy.
26 Page
For Business and Professional Investors Only
High Yield Historically Strong During Slow Growth
High yield performance has
historically held up well during
periods of low economic growth
(0%-2% Real GDP growth), as
companies maintain relatively
conservative balance sheets
amidst modest growth prospects
102538
Median Total Returns by GDP Growth Bucket (Since 1985) Data from 1985 to March 31, 2012
Source: Morgan Stanley, Ibbotson, The Yield Book, Bloomberg Past performance is not indicative of future results. For illustrative purposes only.
27 Page
For Business and Professional Investors Only
Credit Quality of High Yield Market Has Improved
Overall credit quality of the High
Yield market has improved over
the last few years. Both net
leverage and interest coverage
are materially better than their
historical averages.
102538
Net Leverage and Interest Coverage Ratio of US High Yield Market Data from 1996 to July 2012
Source: BofA Merrill Lynch Global Research Past performance is not indicative of future results. For illustrative purposes only.
2.5
2.7
2.9
3.1
3.3
3.5
3.7
3.9
4.1
4.3
4.5
1996 1998 2000 2002 2004 2006 2008 2010
Net
Lev
erag
e (N
et D
ebt/
LTM
EB
ITD
A,
x)
LeverageRatio (HY Issuers) Average Leverage (3.6x)
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
3.6
3.8
4.0
1996 1998 2000 2002 2004 2006 2008 2010
Cov
erag
e (L
TM
EB
ITD
A/N
et L
TM
Int
eres
t E
xpen
se),
x
CoverageRatio (HY Issuers) Average Coverage (3.3x)
28 Page
For Business and Professional Investors Only
Positive Real Yielding Assets Stand to Benefit
From Unconventional Policy Easing
Aligning Investments with Policy: Buying Assets with Positive Real Yields
Both the Fed and ECB are
committed to unconventional
easing in unlimited size and with
no expiration date. This has the
effect of reflating asset prices
and reducing risk premiums.
Asset reflation is the
transmission mechanism for
unconventional policy easing
which will have the effect of
pushing real yields lower.
As a result, assets with positive
real yields stand to benefit.
Note: Real yields as the nominal yield of the asset less longer-term inflation implied by the 5y breakeven
market rates. Dividend yields are viewed as real because inflation is already netted out.
Source: Bloomberg, MSIM.
29 Page
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Credit Risk Premia remain elevated in HY
As of February 28, 2013
Source: Morgan Stanley Investment Management, Moody’s Investor Services, Barclays Live
Credit Risk Premium represents
the excess return above the
historic default loss experience.
Global High Yield Credit risk
premia are higher than the median
for the past 15 years.
Cre
dit R
isk P
rem
ium
(B
Ps)
-1000.0
-800.0
-600.0
-400.0
-200.0
0.0
200.0
400.0
AA A BBB BB B CCC
Current Credit Risk Premium Credit Risk Premium Pre-Crisis *31/12/2006
30 Page
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Attractive Total Return – Global High Yield*
Taking into account carry, spread
tightening and loss given default,
total return looks attractive.
Data as at February 28 2013
Index Yield 5.87%, Option
Adjusted Spread (OAS) 473bps
(Barclays Global High Yield Index.
Default Rate (%) 300 400 450 500 600 800
2 12.6 8.3 6.2 4.1 -0.1 -8.6
3 12.0 7.7 5.6 3.5 -0.7 -9.2
4 11.4 7.1 5.0 2.9 -1.3 -9.8
6 10.2 5.9 3.8 1.7 -2.5 -11.0
8 9.0 4.7 2.6 0.5 -3.7 -12.2
Note: Assuming Interest rates are unchanged through the year
Default Rate (%) 5.00% 5.50% 6.00% 7.00% 8.00% 9.00%
2 8.4 6.2 4.1 -0.1 -4.3 -8.6
3 7.8 5.6 3.5 -0.7 -4.9 -9.2
4 7.2 5.0 2.9 -1.3 -5.5 -9.8
6 6.0 3.8 1.7 -2.5 -6.7 -11.0
8 4.8 2.6 0.5 -3.7 -7.9 -12.2
Spread at 28 February 2014 (bp)
Yield at 28 February 2014 (%)
*Illustrative Returns Only. Source: MSIM
31 Page
For Business and Professional Investors Only
Attractive Total Return – European High Yield*
Taking into account carry, spread
tightening and loss given default,
total return looks attractive
Data as at February 2013 Index
Yield 5.37%, OAS 477bps
(BoA Merrill Lynch European
Currencies High Yield
(constrained) index, excluding
subordinated financials)
*Illustrative Returns Only. Source: MSIM
Recovery Default Rate (%) 300 400 450 500 600 800
2 10.0 6.7 5.1 3.4 0.1 -6.5
40% 3 9.4 6.1 4.5 2.8 -0.5 -7.1
4 8.8 5.5 3.9 2.2 -1.1 -7.7
6 7.6 4.3 2.7 1.0 -2.3 -8.9
8 6.4 3.1 1.5 -0.2 -3.5 -10.1
Note: Assuming Interest rates are unchanged through the year
Recovery Default Rate (%) 4.50% 5.00% 5.50% 6.00% 7.00% 8.00%
2 7.0 5.4 3.7 2.1 -1.2 -4.5
40% 3 6.4 4.8 3.1 1.5 -1.8 -5.1
4 5.8 4.2 2.5 0.9 -2.4 -5.7
6 4.6 3.0 1.3 -0.3 -3.6 -6.9
8 3.4 1.8 0.1 -1.5 -4.8 -8.1
Spread at 28 February 2014 (bp)
Yield at 28 February 2014 (%)
STRATEGY AND OUTLOOK
32 Page
For Business and Professional Investors Only
Appendix
33 Page
For Business and Professional Investors Only
Global High Yield Team - Key Biographies
Christian G. Roth, CFA Managing Director
Chris is a member of the Fixed Income team. He joined Morgan Stanley in 1991 and has 25 years of investment experience. Prior to joining the firm, he was a senior associate in the merchant banking group of Dean Witter Capital Corporation. Chris received a B.S. in economics from the Wharton School of the University of Pennsylvania. He holds the Chartered Financial Analyst designation and is a member of the UK Society of Investment Professionals.
[email protected] Richard is head of the High Yield Fixed Income team at Morgan Stanley Investment Management. He joined the firm in 2011 and has 28 years of investment experience. Prior to joining Morgan Stanley, Richard was a managing director and co-head of U.S. High Yield at Guggenheim Partners responsible for portfolio management, asset gathering, client service and overseeing all high yield trading. Previously, he was a managing director and head of the U.S. and Global High Yield Fixed Income team responsible for managing the firm’s high yield assets for pension funds, mutual funds and insurance companies, as well as globally marketing the strategy and servicing existing high yield clients at both HSBC Halbis Partners (HSBC Global Asset Management) and Credit Suisse Asset Management. Richard received a B.S. in finance from Boston College and an M.B.A. in finance from the University of Chicago. He holds the Chartered Financial Analyst designation.
Richard Lindquist, CFA Managing Director
Leon Grenyer Executive Director
Leon is a member of the Fixed Income team. He joined Morgan Stanley in 2002 and has 15 years of investment experience. Prior to joining the firm, he was a credit analyst and investment analyst at Abbey National Treasury Services. Leon received a B.S. in geography from the University of Bristol.
34 Page
For Business and Professional Investors Only
Compliance Disclaimer
For Business & Professional Investors Only and Not To Be used With The General Public
This financial promotion was issued and approved in the UK by Morgan Stanley Investment Management Limited, 25 Cabot Square, Canary Wharf, London E14 4QA, authorized and regulated by the Financial Services Authority, for distribution to Professional Clients or Eligible Counterparties only and must not be relied upon or acted upon by Retail Clients (each as defined in the UK Financial Services Authority’s rules).
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.
Applications for shares in any Morgan Stanley Investment Funds ("MS INVF") should not be made without first consulting the current Prospectus, Simplified Prospectus, Annual Report and Semi-Annual
Report (“Offering Documents”), or other documents available in your local jurisdiction which are available free of charge at the address above.
The document 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 material contained herein has not been based on a consideration of any individual client 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.
Except as otherwise indicated herein, the views and opinions expressed herein are those of Morgan Stanley Investment Management, are based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available or circumstances existing, or changes occurring, after the date hereof.
This communication is a marketing communication. It is not a product of Morgan Stanley’s Research Department and should not be regarded as a research recommendation.
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Applications for shares in any Morgan Stanley INVF should not be made without first consulting the current Prospectus, Key Investor Information Document ("KIID"), Annual Report and Semi-Annual Report (“Offering Documents”), or other documents available in your local jurisdiction which are available free of charge at the address above.
Risk Disclosure
Past performance is not a guarantee of future performance. The value of the investments and the income from them can go down as well as up and an investor may not get back the amount invested. There can be no assurance that the Fund will achieve its investment objectives.
Investments may be in a variety of currencies and therefore changes in rates of exchange between currencies may cause the value of investments to decrease or increase. Furthermore, the value of investments may be adversely affected by fluctuations in exchange rates between the investor’s reference currency and the base currency of the investments.
For investments in emerging markets, the volatility and risk to your capital may be greater due to potential price volatility, political and/or economic risks. Debt securities may not be rated by a recognized rating agency.
High yield fixed income securities are considered speculative, involve greater risk of default and tend to be more volatile than investment grade fixed income securities. Securities of small capitalization companies: these securities involve greater risk and the markets for such securities may be more volatile and less liquid.
Funds that specialize in a particular region or market sector are more risky than those which hold a very broad spread of investments. Where portfolio concentration is in one sector it is subject to greater risk and volatility than other portfolios that are more diversified and the value of its shares may be more substantially affected by economic events in the real estate industry.
Investments in derivative instruments carry certain inherent risks such as the risk of counter party default and before investing you should ensure you fully understand these risks. Use of leverage may also magnify losses as well as gains to the extent that leverage is employed.
These investments are designed for investors who understand and are willing to accept these risks. Performance may be volatile, and an investor could lose all or a substantial portion of his or her investment.