The Templeton fund received the lowest contirbution from currency bets, Ng said, citing the firm.
Moreover, the Templeton fund took a hit due its emerging market exposure.
“Emerging market bonds underperformed developed market government bonds and corporate in general in that year, leading to underperformance of the Templeton fund.”
Nevertheless, the Templeton fund fared better than the Morgan fund in 2013 and 2012.
But the Templeton product is the more volatile of the two.
“This could be due to relatively higher exposure in emerging countries and their respective currencies.”
A point to be noted is that the Morgan Stanley fund team intends to deliver 200 to 300 basis points of excess return against the benchmark, Ng said, citing details from a presentation by the firm.
Manager review
The Morgan Stanley fund is co-managed by four managers: Michael Kushma, Christian Roth, Jim Caron and Richard Ford.
Kushma has been the lead manager since the fund’s launch in November 2011. He has been with the firm since 1987.
Apart from the fund under review, Kushma also manages other products: the Morgan Stanley Global Bond Fund, the Morgan Stanley Global Mortgage Securities Fund, the Morgan Stanley Absolute Return Fixed Income Fund and the Morgan Stanley Asia Fixed Income Opportunities Fund.
“Kushma is also a member of Morgan Stanley Investment Management’s long-only executive committee, which leads the strategic direction of the long-only business,” Ng said.
Roth, a deputy manager, has also been looking after the fund since its inception. He is the global head of credit and joined the company in 1991.
Caron and Ford started managing the fund since December 2014. Ford joined the company in 1991 and is a portfolio manager for the European corporate bond products. Caron’s details were not available.
“The four managers have extensive industry experience,” Ng said.
The Templeton fund is co-managed by Michael Hasenstab and Sonal Desai.
Hasenstab has been the lead manager since the fund’s inception in 2003. He is vice president and chief investment officer for global bonds.
Hasenstab also manages eight other products at the firm, including: the Templeton Global Bond and the Templeton Emerging Markets Bond funds..
“Hasenstab is a reputable manager in the field, and has won numerous award globally. He specialises in global macroeconomic analysis with a focus on currency, interest rate and sovereign credit analysis of developed and emerging market countries,” Ng said.
Desai is a portfolio manager and director of research for the Franklin Templeton fixed income group’s international bond department. She is responsible for shaping the research agenda of the international bond department and providing macroeconomic analysis to the fixed income team.
Fees
The total expense ratio (TER) for the Morgan Stanley fund was 1.3% for the year ended 31 December 2014, lower than the Templeton fund’s 1.4% during the same period.
“The TER of both funds are pretty much in-line with fees charged by global fixed income peers,” Ng said.
Conclusion
Both investment teams have lengthy experience in the field of fixed income investment and have been delivering strong returns for clients, according to Ng.
The Morgan Stanley fund is better suited as a core holding in a fixed income portfolio because it holds a diversified portfolio across different credit ratings and asset classes, he said.
The Templeton fund could be used as a satellite fund.
“The Templeton fund has a stronger focus on emerging markets with more aggressive currency exposure.
“Given the massive fund size of the Templeton product, its aggressive bets in non-developed regions have the potential to raise liquidity concerns, especially in extreme market conditions. But high cash levels (16% mentioned previously) should be a good cushion to partially smooth out potential effects.”
