Morgan Stanley IM: A Low Carbon Tilt to Global Multi-Asset Investing

Morgan Stanley IM: A Low Carbon Tilt to Global Multi-Asset Investing

The recently-launched Global Balanced Sustainable Fund was the main topic during an internal call with Christian Goldsmith, lead portfolio specialist of the Global Balanced Risk Control (GBaR) team. Here we share some excerpts from that discussion.

08.02.2021 | 12:14 Uhr

Here you can find the complete article

The GBaR team is best known for risk-controlled multi-asset portfolios. What compelled you to launch a new sustainable fund?

It’s true that we’ve built a strong reputation for managing risk. We’ve been running volatility-targeted portfolios since 2009, and all of our portfolios benefit from GBaR’s trademark risk-controlled approach. Sustainable investing, though, is not new to us. We launched our first ESG1 funds in 2016.

Our team’s experience with ESG has convinced us of the increasing materiality of sustainability factors in investment decisions. It’s this conviction, combined with growing demand from clients for innovative approaches to sustainable investing, which inspired us to launch the Global Balanced Sustainable Fund.

Investors are seeking higher-conviction approaches—managers who genuinely strive to contribute solutions to the world’s environmental and social challenges, whilst also providing attractive risk-adjusted returns. Like our existing funds, the Global Balanced Sustainable Fund integrates ESG factors into the investment process and incorporates restriction screening. But it goes further in both of these areas than we have previously gone, plus it has the additional element of impact investing. On top of all of this is our commitment to align our direct equity exposure with the Paris Agreement’s objective of limiting global warming to 1.5° Celsius.

Having spent over a decade researching risks to the global economy and global markets, ESG factors such as climate change clearly fall into our definition of potential “risk events.” We therefore view the fund as a natural extension of our philosophy around risk control.

Tell us more about what makes this fund distinctive. Why should I include it in my portfolio?

Simply put, what makes this portfolio unique is its four-part approach to sustainability. It employs a combination of restriction screening, ESG integration, impact investing and engagement—all in the context of a global portfolio that balances risk and reward across asset classes. A key attribute is that our core equity allocation is aligned with the Paris Agreement’s objective of limiting the increase in global warming to 1.5° Celsius (Display 1). Not many other multi-asset funds can say that.


Source: Morgan Stanley Investment Management.

Download the PDF to read other excerpts from our discussion and learn more about the Global Balanced Sustainable Fund.

1 ESG refers to Environmental, Social and Governance factors

There is no assurance that the strategy 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 strategy may be subject to certain additional risks. There is the risk that the Adviser’s asset allocation methodology and assumptions regarding the Underlying Portfolios may be incorrect in light of actual market conditions and the portfolio may not achieve its investment objective. Share prices also tend to be volatile and there is a significant possibility of loss. The portfolio’s investments in commodity-linked notes involve substantial risks, including risk of loss of a significant portion of their principal value. In addition to commodity risk, they may be subject to additional special risks, such as risk of loss of interest and principal, lack of secondary market and risk of greater volatility, that do not affect traditional equity and debt securities. Currency fluctuations could erase investment gains or add to investment losses. Fixed-income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest-rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In a rising interest-rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. In a declining interest-rate environment, the portfolio may generate less income. Longer-term securities may be more sensitive to interest rate changes. 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 and market risks. Stocks of small-capitalisation companies carry special risks, such as limited product lines, markets and financial resources, and greater market volatility than securities of larger, more established companies. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed markets. Exchange traded funds (ETFs) shares have many of the same risks as direct investments in common stocks or bonds and their market value will fluctuate as the value of the underlying index does. By investing in exchange traded funds ETFs and other Investment Funds, the portfolio absorbs both its own expenses and those of the ETFs and Investment Funds it invests in. Supply and demand for ETFs and Investment Funds may not be correlated to that of the underlying securities. Derivative instruments can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on the portfolio’s performance. The use of leverage may increase volatility in the Portfolio. Diversification does not protect you against a loss in a particular market; however, it allows you to spread that risk across various asset classes.

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