MS INVF Euro Corporate Bond Z

Analyst Report
Morningstar's Take
|18/07/2024

by Evangelia Gkeka
We were notified by Morgan Stanley Investment Management that, after 32 years at the firm, Richard Ford, co-head of the Broad Markets Fixed Income team and lead portfolio manager of Morgan Stanley Investment Funds Euro Corporate Bond since 2008, is retiring on Aug. 30, 2024. Until his departure, Ford will transition his portfolio management responsibilities to individuals on the Broad Markets Fixed Income team, many of whom he mentored over the years. Moreover, Vishal Khanduja, co-head of the Broad Markets Fixed Income team, will become the head of the team after Ford’s retirement.

Leon Grenyer, who has been involved in managing the strategy since 2002, remains in place as portfolio manager, as does Dipen Patel, who joined the firm in 2009 and was added as comanager here in September 2019. Joseph Mehlman, who is currently head of US Investment Grade and joined Morgan Stanley in 2002, will be added as portfolio manager to the fund.

The firm has provided plenty of notice regarding the upcoming changes, which we will discuss in detail with the team as part of our next formal review.

 
Morgan Stanley Investment Funds Euro Corporate Bond benefits from the experience of its management team, a disciplined investment process, and the depth and quality of the available groupwide resources.

Morgan Stanley announced that Richard Ford, lead portfolio manager of Morgan Stanley Investment Funds Euro Corporate Bond since October 2008 and co-head of Broad Markets within Fixed Income, is retiring at the end of August 2024 after 32 years at the firm. In managing the strategy, Ford was closely supported by several key individuals who remain in place. Experienced credit investor Leon Grenyer, who has worked together with Ford at Morgan Stanley Investment Management for over 20 years, has been a named manager here since June 2002. Dipen Patel, who joined the firm in 2009 and was added as comanager here in September 2019, remains in place as well. Joe Mehlman, who joined the firm in 2002 has worked closely with Ford on investment-grade strategies with a focus on US and global credit, will be added as comanager after Ford’s retirement, providing input on top-down, themes, asset allocation, support on the US side and oversight.

Patel and Grenyer are familiar with the strategy and the process and have actively contributed to it over many years, and the addition of Mehlman is positive as well. We have confidence that the new team will be able to continue delivering the same quality of returns and stable alpha as under Ford’s leadership. Consequently, we maintain the People Pillar rating at Above Average.

The managers benefit from being part of a strong global credit team. The depth and quality of the available groupwide resources is a positive. After the acquisition of Eaton Vance, the credit research resources include around 60 professionals across sectors. The investment-grade research analyst team includes around 15 dedicated specialists with an average experience of 17 years, including six professionals specializing in euro-denominated investment-grade bonds.

The managers employ a disciplined, value-focused approach, drawing upon the wider fixed-income team’s expertise. The team’s macroeconomic outlook determines the strategy’s desired level of interest-rate and credit risk, as well as sector exposures, while the analysts provide detailed issuer-level analysis, taking fundamentals, valuation, and bond structure into consideration. That said, attention to the Bloomberg Euro Aggregate Corporate Bond Index while constructing the portfolio means that with financials representing more than 40% of the index, the managers tend to not deviate too far from this. We believe the quality of this analysis and the managers’ active management style combine well together and therefore maintain our Above Average Process Pillar rating.

The focus on valuations means the strategy’s performance can at times diverge significantly from its peers and benchmark. For example, an overweighting in financials, mainly via subordinated bank debt, led to underperformance in 2011 and 2018. However, the same valuation-driven overweighting led to strong outperformance in 2012 and 2019. During a very difficult 2022, the strategy declined by 14.1% and underperformed its peers by 0.8% driven by overweight positions in subordinated financials, as well as off-benchmark sectors such as government-related and fallen angels. In 2023, the fund returned 9.5%, comfortably outperforming its peers by 1.8%. The overweighting to financials (mainly subordinated) and off-benchmark exposures to government-related bonds and high yield that rallied with the market contributed. Despite this volatile pattern, overall the strategy’s returns over Ford’s tenure are well ahead of its peers and the Morningstar Category index, emphasizing the diligent nature of this credit-analysis-heavy, risk-aware, and value-based approach.
 
Morningstar Medalist Rating™Experienced managers employing a risk-aware and value-driven approach.
To find out how Morningstar rates a fund click here.
Morningstar Pillars
PeopleAbove Average
ParentAverage
ProcessAbove Average
 
Morningstar Medalist RatingMorningstar assigns the Medalist Rating to funds that are qualitatively and quantitatively assessed through manager research and algorithmic processes. The assessment turns on three key “pillars” – People, Process, and Parent – that yield an estimate of how well a fund will perform before fees but after adjusting for risk.
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