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  • 1. For Business and Professional Investors Only Morgan Stanley Investment Management High Yield in a low yield world: Still an opportunity March 2013Page 1
  • 2. For Business and Professional Investors Only MSIM Assets Under Management Data as of December 31, 2012 $338 billion in assets firm wide 14% Fixed Income Assets Under Management • Over $160 billion in fixed income & 33% money market assets firm wide 18% • Approximately $61 billion in fixed income assets: – Global Fixed Income: $20 billion – European Fixed Income: $9 billion 35% – Emerging Markets: $10 billion U.S. Fixed Income – US Fixed Income: $22 billion Global Fixed Income Emerging Markets Debt European Fixed Income 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.Page 2 234963
  • 3. 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 lowPage 3
  • 4. 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 fashionPage 4
  • 5. 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 guidelinesPage 5
  • 6. For Business and Professional Investors Only Global Credit Research Coverage Sector Credit Research Global CoverageKey Team Members Aerospace & Defense / Conglomerates / Machinery Matt Millsfield / Leon GrenyerRich Lindquist Airlines / Auto Parts / Rails / Transportation Matt Millsfield / Leon Grenyer / Mohammed Fayek Global High Yield Banks Ryan O’Connell / Alice La Trobe-Weston / Nick DimitrovLeon Grenyer Brokers / Agencies / ABCP / State-Sponsored European Banks Lois Pine Euro High Yield Cable / Media / Telecom / Information Technology Anuj Gulati / Cristian Ghiuvea / Ola HeldalChris Roth Global Credit Chemicals / Energy / Paper & Packaging Lei Wang / Leon GrenyerRic Ford Electronics Cristian Ghiuvea / Leon Grenyer European Credit Emerging Markets/Asian Corporates Chris Lin Emerging Markets Corporates Warren Mar / Juliet LimEach analyst / portfolio manager Finance Companies Nick Dimitrovconcentrates on 2 to 3 industries,focusing their research on Food, Beverage & Tobacco Anuj Gulati / Sarah Singh / Mohammed Fayekapproximately 40-50 companies. Gaming & Lodging / Homebuilding / Services Matthew Millsfield / Mohammed Fayek Healthcare Anuj Gulati / Mohammed FayekNew York based investorsresearch US companies, while our Insurance Nick DimitrovLondon-based investors conduct Metals / Mining Lei Wang / Leon Grenyerresearch on non-US issuers. 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 Well Resourced and Experienced Global Credit TeamPage 6 #sam.asset.id#
  • 7. For Business and Professional Investors Only Portfolio ConstructionA consistent process focused onbottom-up security selection Client’s Macro analysis : Economic environment and valuation Objectives, Guidelines,Ongoing macro analysis to andoptimise portfolio beta positioning Benchmark Fundamental Credit Relative Buy/Sell ClientRisk management is integrated Screens Analysis Discipline Portfolio Valuationinto our investment process Analysis Guideline Monitoring and Risk ManagementPage 7
  • 8. For Business and Professional Investors Only 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.Page 8
  • 9. For Business and Professional Investors Only Middle Market High Yield Typically, middle market issues will provide:The higher coupons and shortermaturities of middle market issuers • Superior yieldstypically translate into lower duration,which we view as attractive during • Higher couponsthe current period of macro risk and • Shorter maturitiesrate volatility • Lower volatilityDuring a typical sell-off, the hard-to- • Default rates in line with broader marketfind nature of smaller middle marketdeals usually makes them less likelyto be sold Cumulative Return vs Issue Size Spread Volatility vs Issue Size 100% 55%Middle market issuers have 50%outperformed the broader market 80% 45%with lower volatility and made 60% 40%portfolios risk / return profiles more 35%attractive 40% 30% 20% 25% 0% 20% 15% -20% 10% -40% 5% Apr-01 Mar-03 Feb-05 Jan-07 Dec-08 Nov-10 Oct-00 Nov-02 Dec-04 Jan-07 Feb-09 Mar-11 $150-200mn $250-300mn $400-500mn $750-1,000mn $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. Page 9
  • 10. For Business and Professional Investors Only MS INVF Global High Yield FundPage 10
  • 11. For Business and Professional Investors Only MS INVF Global High Yield Bond Product Summary Index (Beta) • Barclays Global High Yield Index • Issuer : Index plus 200bp Credit Risk • Sector : Industry sectors generally limited to 3x the index weight for (Alpha Source) sectors < 5% of the index and 2x the index weight for sectors > 5% of the index, subject to a maximum of 25% • Base currency of the fund is a blend of USD, Euro and GBP Currency Duration • +/- 1 year • Can use derivatives (futures/swaps) consistent with Derivatives 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.Page 11
  • 12. For Business and Professional Investors Only MS INVF Global High Yield Bond Fund As of February 28th, 2013 Risk Summary 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 Note: • Barclays Capital Global High Yield Index 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.Page 12
  • 13. For Business and Professional Investors Only 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.Page 13
  • 14. For Business and Professional Investors Only MS INVF Global High Yield Bond Fund As of February 28, 2013 Region & Countries 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.Page 14
  • 15. For Business and Professional Investors Only MS INVF Global High Yield Bond Fund As of February 28th, 2013 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.Page 15
  • 16. For Business and Professional Investors Only MS INVF Global High Yield Bond Fund Presented in USD terms Performance Returns1 as of February 28th, 2013 The inception date of the MS INVF Global High Yield Bond Fund is November 18, 2011 23 21.3 18 16.6 16.4 12.4 Percent (%) 13 8 5.7 3.4 2.9 3 1.3 (0.3) (0.3) -2 February YTD 3 Months 1 Year Since Inception MS INVF Global High Yield Bond Fund (gross) Barclays Capital Global High Yield Index 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 jurisdictionPage 16 which are available free of charge at the address above.
  • 17. For Business and Professional Investors Only MS INVF European Currencies High Yield FundPage 17
  • 18. For Business and Professional Investors Only MS INVF Euro Currencies High Yield Bond Product Summary • BoA Merrill Lynch European Currency High Yield Index (Beta) Constrained Ex Sub Financials (HPS2) • Issuer : Index plus 200bp Credit Risk • Sector : Industry sectors generally limited to 3x the index weight for (Alpha Source) 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 • Base currency of the fund is Euro Corporates, Currency risk • Can buy bonds in non Euro currencies (Currency risk hedged (Alpha Source) hedged) Duration • +/- 1 year • Can use derivatives (futures/swaps) consistent with Derivatives 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.Page 18
  • 19. For Business and Professional Investors Only MS INVF Euro Currencies High Yield Fund: Risk Summary As of February 28, 2013 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 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 arePage 19 available free of charge at the address above.
  • 20. For Business and Professional Investors Only MS INVF Euro Currencies High Yield Fund: Sector Positions Exposure as of February 28, 2013 Note: BoA ML European Currencies High Yield ex Subordinated Financials Index Source: Blackrock, 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 as of February 28, 2013. These views may change without notice as circumstances orPage 20 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.
  • 21. For Business and Professional Investors Only MS INVF Euro Currencies High Yield Fund : Regional Exposure Exposure as of February 28, 2013 Note: BoA ML European Currencies High Yield ex Subordinated Financials Index Source: Blackrock, 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 as of February 28, 2013. These views may change without notice as circumstances orPage 21 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.
  • 22. For Business and Professional Investors Only MS INVF Euro Currencies High Yield Fund : Peripheral Exposure Exposure as of February 28, 2013 Note: BoA ML European Currencies High Yield ex Subordinated Financials Index Source: Blackrock, 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 as of February 28, 2013. These views may change without notice as circumstances orPage 22 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.
  • 23. For Business and Professional Investors Only MS INVF Euro Currencies High Yield Fund : Ratings Exposure as of February 28, 2013 Note: BoA ML European Currencies High Yield ex Subordinated Financials Index Source: Blackrock, 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 as of Februrary 28, 2012. These views may change without notice as circumstancesPage 23 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.
  • 24. For Business and Professional Investors Only Euro Currencies High Yield Bond Strategy European Currencies High Yield Representative Account – Presented in EUR termsIndex (Beta) Performance Returns1 as of February 28th, 2013BoA Merrill Lynch European Currency The inception date of the European Currencies High Yield Representative Account is December 14, 1998High Yield Constrained Ex SubFinancials (HPS2) 18Credit Risk (Alpha Source)Issuer : Index plus 200bp 16 15.98Sector : Index +/- 10% 14.56Non Euro Denominated Corporates, 14Currency risk hedged (Alpha 11.66 12 11.23 11.30Source) 10.84 10.40 Performance (%)Base currency of the fund is Euro 9.61 10Can buy bonds in non Euro currencies(Currency risk hedged) 8Duration Risk 6 4.96+/- 1 year 4 3.37Derivatives 2.89 2.79Can use derivatives (futures/swaps) 2 1.27 1.02consistent with investment 0.70 0.83guidelines/UCITS3 0AUM: €549 million (02/28/13) -2Available Vehicles: February YTD 3 Months 1 Year 3 Years 5 Years 10 Years Since InceptionSICAV Pooled VehicleSeparate Account European Currencies High Yield Representative Account (Gross) BoA Merrill Lynch European Currency High Yield Constrained Index excl Sub Financials 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 InformationPage 24 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.
  • 25. For Business and Professional Investors Only Current High Yield Bond Strategy (March 2013)1 Good Fundamentals Dependent on Eurozone Current Themes • Slow global economic recovery; economic data plateaus • Focus on B-rated issuers • Eurozone will still dominate headlines • Identifying winners and avoiding losers is key to • China growth important to global demand, but moderating outperformance • Monetary policy easy; fiscal policies tighter • Underweight issuers with a large percentage of European-related business • 4Q12 Earnings mixed • Target industrials with pricing power and ability to • Default rates low, expected to remain low in 2013 pass through raw material inflation. See risks to Forward Indicators Mixed margins. • Overweight quality middle market issuers that offer a • Global Confidence indicators diverging yield advantage over the largest high yield issuers • Austerity plans a likely drag on growth in Europe • Event risk often positive to High Yield, e.g. re- • Bank deleveraging to impact growth equitization: IPO / shareholder contributions / asset • Moderate US GDP growth of around +2% for 2013 sales • Continued high unemployment, improving housing market • M&A: potential to be bought by cash-rich IG • China slowdown, global growth implications companies Technicals Still Positive Sector Choice • Demand for credit strong; net new corporate supply moderate • Overweights: Packaging,, Aerospace, Building • Dealer balance sheets significantly reduced Materials, Gaming, Cyclical Consumer Services, Consumer Products, Food and Beverage • Price moves exaggerated by thin trading Transportation Services • Underweights: Metals and Mining, Paper, Media, Valuation Remains Attractive Wirelines, Airlines, Home Construction, Energy, • Spreads still attractive on a leverage-adjusted basis Utilities, • 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.Page 25 53985
  • 26. For Business and Professional Investors Only High Yield Historically Strong During Slow GrowthHigh yield performance has Median Total Returns by GDP Growth Bucket (Since 1985)historically held up well during Data from 1985 to March 31, 2012periods of low economic growth(0%-2% Real GDP growth), ascompanies maintain relativelyconservative balance sheetsamidst modest growth prospects Source: Morgan Stanley, Ibbotson, The Yield Book, BloombergPage 26 Past performance is not indicative of future results. For illustrative purposes only. 102538
  • 27. For Business and Professional Investors Only Credit Quality of High Yield Market Has Improved Net Leverage and Interest Coverage Ratio of US High Yield Market Data from 1996 to July 2012 4.5 4.0 4.3 3.8 4.1 Coverage (LTM EBITDA/Net LTM Interest Expense), x 3.6 Net Leverage (Net Debt/LTM EBITDA, x) 3.9 3.4 3.7 3.2Overall credit quality of the HighYield market has improved over 3.5 3.0the last few years. Both netleverage and interest coverage 3.3 2.8are materially better than their 3.1 2.6historical averages. 2.9 2.4 2.7 2.2 2.5 2.0 1996 1998 2000 2002 2004 2006 2008 2010 1996 1998 2000 2002 2004 2006 2008 2010 LeverageRatio (HY Issuers) Average Leverage (3.6x) CoverageRatio (HY Issuers) Average Coverage (3.3x) Source: BofA Merrill Lynch Global ResearchPage 27 Past performance is not indicative of future results. For illustrative purposes only. 102538
  • 28. For Business and Professional Investors Only Positive Real Yielding Assets Stand to Benefit From Unconventional Policy EasingAligning Investmentswith Policy: BuyingAssets with Positive RealYieldsBoth the Fed and ECB arecommitted to unconventionaleasing in unlimited size and withno expiration date. This has theeffect of reflating asset pricesand reducing risk premiums.Asset reflation is thetransmission mechanism forunconventional policy easingwhich will have the effect ofpushing real yields lower.As a result, assets with positivereal 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.Page 28 Source: Bloomberg, MSIM.
  • 29. For Business and Professional Investors Only Credit Risk Premia remain elevated in HY As of February 28, 2013Credit Risk Premium representsthe excess return above the 400.0historic default loss experience.Global High Yield Credit riskpremia are higher than the median 200.0for the past 15 years. 0.0 Credit Risk Premium (BPs) AA A BBB BB B CCC -200.0 -400.0 -600.0 -800.0 -1000.0 Current Credit Risk Premium Credit Risk Premium Pre-Crisis *31/12/2006 Source: Morgan Stanley Investment Management, Moody’s Investor Services, Barclays Live Page 29
  • 30. For Business and Professional Investors Only Attractive Total Return – Global High Yield* Spread at 28 February 2014 (bp)Taking into account carry, spread Default Rate (%) 300 400 450 500 600 800tightening and loss given default,total return looks attractive.Data as at February 28 2013 2 12.6 8.3 6.2 4.1 -0.1 -8.6Index Yield 5.87%, Option 3 12.0 7.7 5.6 3.5 -0.7 -9.2Adjusted Spread (OAS) 473bps(Barclays Global High Yield Index. 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 Yield at 28 February 2014 (%) 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 *Illustrative Returns Only. Source: MSIMPage 30
  • 31. STRATEGY AND OUTLOOK For Business and Professional Investors Only Attractive Total Return – European High Yield*Taking into account carry, spread Spread at 28 February 2014 (bp)tightening and loss given default, Recovery Default Rate (%) 300 400 450 500 600 800total return looks attractiveData as at February 2013 Index 2 10.0 6.7 5.1 3.4 0.1 -6.5Yield 5.37%, OAS 477bps(BoA Merrill Lynch European 40% 3 9.4 6.1 4.5 2.8 -0.5 -7.1Currencies High Yield 4 8.8 5.5 3.9 2.2 -1.1 -7.7(constrained) index, excluding 6 7.6 4.3 2.7 1.0 -2.3 -8.9subordinated financials) 8 6.4 3.1 1.5 -0.2 -3.5 -10.1 Note: Assuming Interest rates are unchanged through the year Yield at 28 February 2014 (%) 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 *Illustrative Returns Only. Source: MSIMPage 31
  • 32. For Business and Professional Investors Only AppendixPage 32
  • 33. For Business and Professional Investors Only Global High Yield Team - Key Biographies Richard Lindquist, CFA Christian G. Roth, CFA Leon Grenyer Managing Director Managing Director Executive Director richard.lindquist@morganstanley.com christian.roth@morganstanley.com leon.grenyer@morganstanley.com Richard is head of the High Yield Fixed Chris is a member of the Fixed Income Leon is a member of the Fixed Income Income team at Morgan Stanley team. He joined Morgan Stanley in team. He joined Morgan Stanley in Investment Management. He joined the 1991 and has 25 years of investment 2002 and has 15 years of investment firm in 2011 and has 28 years of experience. Prior to joining the firm, he experience. Prior to joining the firm, he investment experience. Prior to joining was a senior associate in the merchant was a credit analyst and investment Morgan Stanley, Richard was a managing banking group of Dean Witter Capital analyst at Abbey National Treasury director and co-head of U.S. High Yield at Corporation. Chris received a B.S. in Services. Leon received a B.S. in Guggenheim Partners responsible for economics from the Wharton School of geography from the University of Bristol. portfolio management, asset gathering, the University of Pennsylvania. He holds client service and overseeing all high yield the Chartered Financial Analyst trading. Previously, he was a managing designation and is a member of the director and head of the U.S. and Global UK Society of Investment Professionals. 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.Page 33
  • 34. For Business and Professional Investors Only Compliance DisclaimerFor Business & Professional Investors Only and Not To Be used With The General PublicThis 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 FinancialServices 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’srules).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-AnnualReport (“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. Thematerial 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 regulatoryadvice. 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 ofany 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.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 theapplicable licensor and it shall not have any liability with respect thereto.All information contained herein is proprietary and is protected under copyright law.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 DisclosurePast 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 canbe 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 investmentsmay 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 ratingagency.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 capitalizationcompanies: 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 andvolatility 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 alsomagnify 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.Page 34