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Morgan Stanley Sterling Corporate Bond: September 2020 update

Joseph Hill | Fri 04 September 2020

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
  • Richard Ford is an experienced corporate bond investor and has the support of a strong team at Morgan Stanley
  • The managers mainly invest in higher quality bonds, believing that this will drive superior long term returns
  • The fund has performed well over the long term delivering good returns to patient investors
  • The fund is on our Wealth Shortlist of funds chosen by our analysts for their long term potential

How it fits into a portfolio

The managers focus on income but aim to generate some growth over the long term too by investing in a wide selection of high-quality corporate bonds. The fund is run in a more conservative way to some corporate bond funds, and could add some balance to a portfolio focused on shares or higher risk bond funds. This means it could perform a little better when bond markets fall, but also lag behind when they rise rapidly.

Manager

The fund is managed by Richard Ford and Dipen Patel who are supported by a strong fixed income team at Morgan Stanley from across the globe. Ford became manager of the fund in 2005 and has 28 years of investment experience. He was joined by Patel as co-manager in 2018. The managers also run a number of other fixed income strategies at Morgan Stanley but we think the duo have the experience, support and resources to do a good job for investors.

Process

The managers start by forming their outlook for the wider global economy, considering the prospects for growth, interest rates, inflation and more. They then research individual companies and bonds, trying to make sure companies have the ability to pay the full interest on their bonds and make the capital repayments too.

They think superior long-term returns will be generated by holding better quality bonds. Although they could provide a lower return than riskier ones when the economy's doing well, they feel these higher-quality bonds will more than make up for it by falling less when bond markets fall. Ford and Patel also take account of valuations to avoid bonds that could be too expensive, or where the yield is too low to offset the risks they've identified.

The fund invests heavily in the UK, but includes some global bonds too. Where they invest in overseas bonds, the mangers remove the effect of exchange rate changes by using derivatives, which adds risk. They also have the freedom to invest in high yield bonds which also adds risk. Ford and Patel have used the recent coronavirus related period of market volatility to make some changes to the fund. This included adding some newly issued bonds from higher quality issuers at attractive valuations.

Culture

Morgan Stanley’s scale and strong history of managing clients’ money means Ford and Patel can rely on an extensive team of experienced fixed income professionals to help them find the best investment opportunities. We view it positively that the managers are incentivised to focus on the long-term performance.

The managers also take into account ESG factors, believing that they have the ability to impact the price and risk of a bond and that responsible companies tend to have fewer defaults.

Cost

The fund has an annual ongoing fund charge of 0.37%, but through Hargreaves Lansdown you can secure an ongoing saving of 0.15%. This means you’ll pay an ongoing charge of 0.22%. We think this is great value. The HL platform fee of up to 0.45% a year also applies.

Performance

The fund's relatively defensive approach means it has tended to slightly lag a rising market, but provide some shelter during tougher periods. It performed particularly well around the financial crisis in 2008, for example. Having provided some shelter during difficult market conditions, the managers have also captured some gains as markets have performed well in recent years. As a long-term investment, the fund has done well for investors who've patiently stayed invested, but there are no guarantees and past performance is not a guide to the future.

The fund fell by more than its corporate bond peer group over March and April as the coronavirus induced volatility unsettled markets but it has since regained some ground in the recovery. More recently the fund’s overweight to investment grade bonds (those issued by more creditworthy companies) and underweight to high yield bonds (riskier bonds issued by less creditworthy companies) has contributed to performance. We think Richard Ford and Dipen Patel have the potential to reward long-term investors.

Annual percentage growth
Aug 15 -
Aug 16
Aug 16 -
Aug 17
Aug 17 -
Aug 18
Aug 18 -
Aug 19
Aug 19 -
Aug 20
Morgan Stanley Sterling Corporate Bond 12.1% 2.4% -0.4% 8.4% 3.3%
IA Sterling Corporate Bond 13.5% 1.6% -0.7% 8.4% 3.4%

Past performance is not a guide to the future Source: Lipper IM to 31/08/2020.


More on Morgan Stanley Sterling Corporate Bond, including charges

Morgan Stanley Sterling Corporate Bond Key Investor Information


Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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