MS INVF Euro Corporate Bond Z

Analyst Report
Morningstar's Take

by Evangelia Gkeka
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.

Managers Richard Ford and Leon Grenyer are experienced credit investors and provide a stable management team, having worked together at Morgan Stanley Investment Management for more than 20 years. While Grenyer has been involved in managing the strategy since 2002, Ford took over the lead in 2008. Their experience and long-standing partnership are key to our Above Average People rating. In September 2019, Dipen Patel, who joined the firm in 2009, was added as comanager and contributes on the investment-grade credit security selection. The managers also benefit from being part of a strong global credit team. After the acquisition of Eaton Vance, the credit research resources include around 50 professionals across sectors. The investment-grade research analyst team includes 14 dedicated specialists with an average experience of 17 years, including six professionals specialising in euro-denominated investment-grade bonds.

The managers employ a 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.

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% and its category index by 0.5% driven by overweight positions in subordinated financials, as well as off-benchmark sectors such as government-related and fallen angels. Despite this volatile pattern, overall the strategy’s returns over Ford’s tenure are well ahead of its peers and the Morningstar Category index, emphasising the diligent nature of this credit-analysis-heavy, value-based approach.
Morningstar Medalist Rating™Experienced managers employing a risk-aware and value-driven approach.
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Morningstar Pillars
PeopleAbove Average
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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