Global Opportunity Portfolio

Size: px

Start display at page:

Download "Global Opportunity Portfolio"

Arabella Russell
6 years ago
Views:

1 MORGAN STANLEY INSTITUTIONAL FUND Global Opportunity Portfolio ACTIVE FUNDAMENTAL EQUITY GLOBAL OPPORTUNITY TEAM COMMENTARY DECEMBER 31, 2017 Performance Review The investment team seeks high quality companies, which we define primarily as those with sustainable competitive advantages. We manage concentrated portfolios that are highly differentiated from the benchmark, with securities weighted on our assessment of the quality of the company and our conviction. The value added or detracted in any period of time will result from stock selection, given our philosophy and process. For the quarter, the Global Opportunity Portfolio returned 6.62% and the MSCI All Country ( AC ) World Index returned 5.73%. The long-term investment horizon and conviction-weighted investment approach embraced by the investment team can result in periods of performance deviation from the benchmark and peers. Over time, this has led to the strong record we have developed over our product set. The Fund outperformed the MSCI AC World Index this period due to favorable stock selection and sector allocation. Our team continues to focus on bottom-up stock selection and the long-term outlook for companies owned in the portfolio; accordingly, we have had very little turnover in the portfolio to date, and we continue to find new ideas for inclusion in the portfolio that meet our strict criteria for quality and long-term value creation. Global equities advanced during the period, led by outperformance in information technology, materials, consumer discretionary, energy and financials. The utilities sector posted negative returns while the health care and telecommunications sectors underperformed the MSCI AC World Index. Stock selection and a sector overweight position in the information technology sector were the first- and thirdgreatest contributors to relative performance, respectively. EPAM Systems was the second greatest contributor to performance across the portfolio. The business services firm is focused on sophisticated outsourced software development for global multinationals from its low-cost base in Belarus, Czech Republic, Poland, Russia and Ukraine. We believe EPAM Systems is well-positioned to benefit from the secular growth in information technology outsourcing as a low-cost provider of high-end software development to global, diversified customers. Chinese social networking platform Tencent Holdings was the third greatest contributor across the portfolio. We believe Tencent can benefit from increased monetization of WeChat, QQ and other social network platforms via gaming, payments and advertising. Chinese social commerce platform Alibaba was the fifth greatest detractor. We believe that Alibaba is unique because of the powerful network effect of its online marketplace where over 450 million users engage in consumer product reviews and purchases (Source: Company data as of December 31, 2017). We believe Alibaba can monetize the uniqueness of its platform through e-commerce, online advertising, cloud computing and financial technologies. 1

2 Stock selection and a sector underweight position in the health care sector were the second- and fourthgreatest contributors to relative performance during the period, respectively. A sector overweight position in consumer discretionary was the fifth greatest contributor to performance, while stock selection in the sector was the greatest relative detractor. Within the sector, Amazon.com was the greatest individual contributor to performance. We believe the online retail and cloud computing leader is unique due to its unparalleled scale and cost advantage. We continue to be attracted to management's focus on longterm value creation through reinvestment in its Amazon Web Services (AWS) cloud computing platform and its dominance of North American e-commerce. Shares in South African media company Naspers were the fourth greatest contributor. We continue to believe Naspers is undervalued relative to minority stakes in Chinese social networking platform Tencent Holdings as well as Mail.ru, MakeMyTrip and other internet investments (Source: Company data as of December 31, 2017). Strength in Amazon and Naspers was partially offset by weakness in TAL Education and Priceline, which were the first- and second-greatest detractors across the portfolio, respectively. TAL Education is the leading provider of math and science tutoring with over two million student enrollments across 575 learning centers in 36 cities in China (Source: Company data as of December 31, 2017). We believe TAL Education is unique because of its strong brand, reflected by its excellent teaching quality and leadership in mathematics, as well as its proven track record of scalability and capital efficient business model. Online travel agency Priceline has a leading market position, strong distribution platform and the largest supply network in the international hotel market, which is largely dominated by independent operators that rely on an online agent to aggregate demand and sell inventory. Within consumer staples, strength in shares of China Resources Beer (Holdings) was offset by weakness in shares of Calbee and Anheuser-Busch InBev, which were the third- and fourth-greatest detractors from performance, respectively. China Resources Beer owns China s top beer brand Snow Beer, and we believe the company benefits from margin expansion as it consolidates domestic market share and drives product premiumization. We are attracted to Japanese snack foods manufacturer Calbee s dominant market position domestically and the sizeable opportunity it has to expand internationally, particularly in the U.S. and China. Anheuser-Busch InBev is the world s largest brewer with market share leadership and strong cost advantage and distribution. Based on our industry analysis, we believe Anheuser-Busch InBev is unique due to consumer brand focus, strong cash flow generation and commitment to innovation. Stock selection in industrials detracted from performance. The portfolio s sector underweight positions in the materials, energy and financials sectors detracted from relative performance, while sector underweight positions in real estate, telecommunications services and utilities had a negligible impact upon relative performance. Portfolio Activity There were no major changes to the portfolio during the period. Outlook As a team, we continue to focus on bottom-up stock selection and the long-term outlook for companies owned in the portfolio. We assess company prospects over a three- to five-year time 2

3 horizon and own a portfolio of what we believe are undervalued, high quality companies with diverse business drivers not tied to any particular market environment. 3

4 Performance (%) As of December 31, 2017 (Class I Share at NAV) MTD QTD YTD 1 YEAR 3 YEAR 5 YEAR SINCE INCEPTION 5/30/08 MSIF Global Opportunity Portfolio MSCI AC World Index Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month end performance figures, please visit morganstanley.com/im or call Investment returns and principal value will fluctuate and fund shares, when redeemed, may be worth more or less than their original cost. The gross expense ratio is 1.07% for Class I shares and the net expense ratio is 1.00%. Where the net expense ratio is lower than the gross expense ratio, certain fees have been waived and/or expenses reimbursed. These waivers and/or reimbursements will continue for at least one year from the date of the applicable fund s current prospectus (unless otherwise noted in the applicable prospectus) or until such time as the fund's Board of Directors acts to discontinue all or a portion of such waivers and/or reimbursements. Absent such waivers and/or reimbursements, returns would have been lower. Expenses are based on the fund's current prospectus. The minimum initial investment is $5,000,000. Returns are net of fees and assume the reinvestment of all dividends and income. They are compared to an unmanaged market index. Returns for less than one year are cumulative (unannualized). Performance for one year or more is based on average annual total returns. The returns are reported for Class I shares. Performance for other share classes will vary. Please keep in mind that high double-digit returns are highly unusual and cannot be sustained. Investors should also be aware that these returns were primarily achieved during favorable market conditions. Sector Allocation As of December 31, Numbers may not add up to 100% due to rounding. Subject to change. MSIF GLOBAL OPPORTUNITY PORTFOLIO (%) MSCI AC WORLD INDEX (%) OVER/(UNDER) WEIGHT VS. MSCI AC WORLD INDEX (%) Overweight Information Technology Consumer Discretionary Consumer Staples Underweight Utilities (2.9) Telecommunication Services (3.0) Real Estate (3.1) Industrials (5.5) Materials (5.5) Energy (6.4) Health Care (10.7) Financials (16.6) Cash

5 Top Ten Holdings As of December 31, 2017 % of Total Net Assets. Subject to change. MSIF GLOBAL OPPORTUNITY PORTFOLIO (%) Facebook 8.9 Amazon.com 7.2 MasterCard 5.1 TAL Education Group 4.7 Priceline Group 4.7 EPAM Systems 4.7 DSV A/S 4.6 Reckitt Benckiser Group plc 4.2 Alphabet 4.1 Tencent 3.9 Top Ten Holdings 52.1 The views and opinions expressed are those of the portfolio management team at the time of writing and are subject to change at any time due to market, economic, or other conditions, and may not necessarily come to pass. These comments are not representative of the opinions and views of the firm as a whole. Holdings and sectors/region weightings are subject to change daily. All information provided is for informational purposes only and should not be deemed as a recommendation to buy or sell securities in the sectors and regions referenced. This material is a general communication, which is not impartial and all information provided has been prepared solely for informational and educational 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. RISK CONSIDERATIONS: 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 values of securities owned by the portfolio will decline and that the value of portfolio shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in this portfolio. Please be aware that this portfolio may be subject to certain additional risks. In general, equities securities values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, market and liquidity risks. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed countries. Privately placed and restricted securities may be subject to resale restrictions as well as a lack of publicly available information, which will increase their illiquidity and could adversely affect the ability to value and sell them (liquidity risk). The MSCI All Country World Index (MSCI ACWI) is a free float-adjusted market-capitalization-weighted index designed to measure the equity market performance of developed and emerging markets. The term free float represents the portion of shares outstanding that are deemed to be available for purchase in the public equity markets by investors. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. The index is unmanaged and does not include any expenses, fees or sales charges. It is not possible to invest directly in an index. Please consider the investment objectives, risks, charges and expenses of the fund carefully before investing. The prospectus contains this and other information about the fund. To obtain a prospectus, contact your financial advisor or download one at morganstanley.com/im. Please read the prospectus carefully before investing. Morgan Stanley Investment Management is the asset management division of Morgan Stanley. NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT 2018 Morgan Stanley. Morgan Stanley Distribution, Inc Exp. 1/31/2019 5

Asia Opportunity Portfolio

MORGAN STANLEY INSTITUTIONAL FUND Asia Opportunity Portfolio ACTIVE FUNDAMENTAL EQUITY GLOBAL OPPORTUNITY TEAM COMMENTARY SEPTEMBER 30, 2017 Performance Review The investment team seeks high-quality companies,