Commodities Friends or Foe

8/9/2019 Commodities Friends or Foe

1/12

Ifocus February 2010

Investment management

Henry H. McVey

Managing Director

Head, Global Macro and Asset Allocation

212 296 0404

[email protected]

Coodii: Frid or Fo ?

Executive Summary

I h i bui, I h co o pprci h hr r lwy oppoiiw o rk, cor, yl d ock. Wh h d hi ri o p

lil or iri or i h, whil y bckroud i i cil ric, y

old brohr proiol purui r likd o rl d ry ii (i..,

hrd ). no doub, I h rlly b o h loi d o hi db i rc

yr, hrd h ily ouprord cil or h br pr o

dcd. mki r wor i h h h hd h ood o r hi cr i

buiul Chrloill, virii, whil I coiu o rid i ou i mh!

gi h h drub urroudi hrd ii o row loudr ch

dy, w r icrily bi kd by our cli whhr hr i ill i l o

iully coi cpil o coodii hi poi i h cycl. Our wr i,

w hik o, bu i i crily o h o brir h w xpcd wh w rd our

dp di io h coodiy r (pl o h w r ui h gsCI proxy

i hi lyi). Our cocluio r ollow:

W bli h coodii r rh i r o porolio llocio i hir

rol iio hd. Ti chrcriic i or coplli rli o ohr

cl uch rl i o bli h ir r r oi o ri.

Coodii c lo c ipor dirir i y ic, priculrly

duri priod o hihd opoliicl io.

Coodii do h o obl horcoi, icludi hir prorc

duri priod o cooic wk. Ty h lo bco icrily corrld

o ub o h quiy rk. I ddiio, coodiy i c lo dd

iic oliliy o porolio.I h curr coo iro, h i roll ur o coodii

c c iic dr o orll prorc.

Looki h bi picur, coodiy prorc duri h l dcd h b o

ouizd rli o p cycl h i do k u wodr whhr h lio hr

o bolu rur i h cl h lrdy b chid. a uch, i uibl, w

bli h coodii hould rpr roud 5-7% o orll i porolio

or lr iiuiol ccou d h llocio hould b cicl i ur, i

uch ro prorc ro nobr 2001 hrouh Fbrury o hi yr.1

1

D ro nobr 6, 2001 hrouh Fbrury 2, 2010.


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2 |2 |

Commodities: The Premier Inflation Hedge

Krl mrx oc id, a coodiy ppr r ih xrly obiou, riil hi. Bu i lyi bri ou h i i ry

r hi, boudi phyicl ubli d holoicl ici. mr. mrx crily did o dbbl i cro ii or

llocio, bu I hik h w oo ohi. spciclly, w bli o o h r iru o coodii i h hy c hlp r

iio hd. O c hi ur clrly i Exhibit 1. I how h coodii hioriclly prord wll i priod o hih

iio, rii iio or iio hock. Duri h priod, boh quii d bod howd dippoii prorc d

hc ild o r ci hor-r iio hd.

Exhibit 1: Correlation of asset classes with inflation

-60

-50

-40

-30

-20

30%

0

10

20

-10

Inflation Change Expected

Inflation

Unexpected

Inflation

Stocks Bonds Commodity Futures

Ination: YoY% CPI. Expected ination: T-bill rate as proxy. Unexpectedination: Ination - Expected ination. Data is quarterly from July 1, 1959to December 31, 2004. Past performance is no guarantee of future results.

Source: Gorton & Rouwenhorst, Facts and Fantasies about CommodityFutures. Draft: February 28, 2005.

Exhibit 2: Rolling five-year correlations with change

in inflation

-0.4

-0.2

0.6

0.4

0.2

0.0

01/03 01/04 01/05 01/06 01/07 01/08 01/09

US Equities US Bonds Commodities US TIPs

Data from January 1, 2003 to December 31, 2009. Past performance is noguarantee of future results.

The asset classes shown are based on the S&P 500, Ibbotson Corporate BondIndex, S&P GSCI and Barclays Global Ination Linked Bonds - US TIPS, repectivel

Source: MSIM, Bloomberg, Datastream

W bli h iio-hdi ur o coodii ri po, i ody olil rk. a how i Exhibit 2, o rolli -yr bi, coodii d ou br iio hd h quii, bod or tIPs. Iporly, coodii

rliohip wih iio h rlly ood h i priod o boh rii d lli iio, hrouh i wh ohr

rk cully ild iio hd.

More Effective Short-Term Hedge than Real Estate, Particularly in Moderate Rate Environments

a llocor w pk wih o lup coodii d corcil rl (CRe) ohr udr h brod cory o iio

hd. W co ru i h udl loic h boh hrd cl c poilly proid iio procio or h

lo r, bu or ior who lo kp hir y o horr i horizo (y, 6-12 oh), w hik bucki coodii d

CRe ohr i ohi o oriplicio.

a ky diicio i h CRe ior ypiclly purch hir ui lo-r ci, which dd criicl l o ir-r iiiy o hir i dciio. Exhibit 3 how h i odr ir-r iro (4-8% 10-yr trury yild),

hr i lil corrlio bw rl d ch i iio r. Ti obrio ppli or boh ReIt ( urd by

h naReIt equiy ReIt Idx) d dirc rl ( urd by h nCReIF Idx) prorc. Oly i ulr-low ir-

r iro (0-4% 10-yr trury yild)whr dio i ypiclly h prdoi rik bi pricd i by h rkdo

CRe how coplli poii corrlio wih iio r rd. By coprio, w oud h h gsCI coodiy idx

xhibid ro poii corrlio wih hor-r iio (Exhibit 4) cro illy ll r iro.


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Exhibit 3: Short-term inflation-hedging power of

real estate is often compromised by its interest-

rate sensitivity

-0.4

-0.2

0.0

0.2

0.4

1.0

0.8

0.6

04%

0.68

0.78

0.11

-0.20

0.35

-0.14

48% >8%

NCREIF Property Index Equity REITs (TR)

Correlation Between Real Estate Indexes and Inflation Rate y/y Change,

in Various Yield Environments

Initial US10yr Yield

Ination rates measured by US CPI. Data from December 31, 1978 to

December 31, 2009. Past performance is no guarantee of future results.Source: Bloomberg, MSIM

Exhibit 4: But the inflation-hedging power of

commodities has been strong across various

yield environments

0.0

0.1

0.2

0.3

0.4

0.9

0.6

0.7

0.8

0.5

04% 48% >8%

0.85

0.72

0.59

Correlation Between GSCI Index and Inflation Rate y/y Change,

in Various Yield Environments

Initial US10yr Yield

Ination rates measured by US CPI. Data from December 31, 1978 to

December 31, 2009. Past performance is no guarantee of future results.Source: MSIM, Bloomberg

A Good Diversifier in Many Market Conditions

Bid ci ro iio hd, coodii c poilly dd diricio b o o porolio duri orl

rk codiio. Exhibit 5udrcor hi iw, w how coodii h illy b ucorrld o 60/40 quiy/bod

porolio duri o-r priod i h lobl cpil rk. no urpriily, coodii h lo prord wll wh hr h

b rii opoliicl io. For xpl, i h priod ldi up o h Fir gul Wr, h scod Irq Wr d h 2008 middl

e ucriy, coodii hid, priculrly rli o ock (Exhibit 6, next page).

Exhibit 5: Commodities have been weakly correlated to a traditional equity/bond portfolio during

normal market conditions

Global

Macro/GTAA

EM Equities US REITs Senior Loans US High Yield US TIPs EM Debt Commodities Currency Hedge Funds Volatility

Normal Periods

-1.0

-0.5

0.0

0.5

1.0

-0.07

0.54

0.01

0.22

0.46

-0.10

0.55

-0.04 -0.03 -0.06

-0.47

Correlation with a 60/40 Traditional Portfolio

Data from January 1, 1990 to December 31, 2009. Past performance is no guarantee of future results.

The 60/40 Traditional Portfolio is this paper consists of 60% equities (30% S&P 500, 30% MSCI World ex USA) and 40% bonds (20% Barclays US Aggregate, 20%

JPM Global Govt Bond ex USA). The asset classes shown are based on the HFRX Macro Index, JPM EMBI Global, FTSE / NAREIT Equity REITS Index, S&P/LSTA

Leveraged Loan Index, Barclays US Corporate High Yield Index, Barclays Global Ination-Linked Bonds - US TIPS, MSCI EMF Gross Index (Local), S&P GSCI, Barclays

Trader Indexes Currency, HFRI Fund of Funds Composite Index and CBOE SPX Volatility Index, respectively.

Source: MSIM, Bloomberg


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Exhibit 6: Geopolitical risk tends to drive divergence between commodity and equity performance

10

20

10

0

1990: Onset of Gulf War 2003: Months leading up to

Second Iraq War

Mid 2008: Middle East

Uncertainty; Rising

Commodity Prices

US Equities Commodities

AverageMonth

lyReturns(%)

Onset of Gulf War data from July 31, 1990 to August 31, 1990; Months leading up to Second Iraq War data from December 31, 2002 to February 28, 2003;

Middle East uncertainty data from May 31, 2008 to June 3, 2008. Past performance is no guarantee of future results.

The asset classes shows are based on the S&P 500 Index and S&P GSCI, respectively.


But Not a Protection Agent During Economic Downturns

I hr i achill Hl o coodiy ii, howr, i h o b h coodii h o b ood dirir i

dowur. a Exhibit 7how, corrlio wih rdiiol 60/40 quiy/bod porolio h jupd ro i 4% o rli

43% duri priod o rk r. Ti lck o diricio i bi dl ( our o, mi Rik: Bck o Bic, Dcbr

2009), d crily dipl y oio h diricio b occur by ju ddi or i cl o porolio. T

ro or h gsCI dr corrlio wih ohr duri r priod, w bli, i h cil cri r o ocid

wih dclii iio, which i h or coodiy prorc (Exhibit 8).

Exhibit 7: When markets are in turmoil, commodities may not serve as a good diversifier to a traditional portfolio...

Global

Macro/GTAA

EM Equities US REITs Senior Loans US High Yield US TIPs EM Debt Commodities Currency Hedge Funds Volatility

Stress Periods

-1.0

-0.5

0.0

0.5

1.0

0.26

0.68

-0.05

0.49

0.590.52

0.76

0.43

-0.30

0.32

-0.69

Correlation with a 60/40 Traditional Portfolio

Data from January 1, 1990 to December 31, 2009. See Exhibit 5 footnotes for details on the indices representing these asset classes. Past performance is no guaranteeof future results.

Source: MSIM, Bloomberg.


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Exhibit 8: Commodities have not performed well in declining ination environments, which are usually

led by equity market downfalls

US Equity Return (%)

GSCIReturn(%)

Cases Against Commodities

Declining Inflation

slope= 0.80

-30

-10

-20

20

10

0-18 -12 -6 0 6

Data from January 1, 1990 to December 31, 2009. Past performance is no guarantee of future results.

US equity return as measured by the S&P 500 Index.


Correlations Are Rising

W bli h coodii h rdiiolly rd xcll dirir o rdiiol quiy/bod porolio, hy dord

i corrlio o boh quii d bod. Or i, howr, h corrlio o coodii o quii d bod h

icrd. I priculr, corrlio kyrockd or h p wo yr (Exhibit 9).

W lik hi ur o, o ohr hi, h ollowi: low ir r, rr liquidiy, lowr ricio co d hir icrd

cocio o ri rk.

Exhibit 9: Commodities are now increasingly correlated to equity markets, especially emerging market equities

-0.50

-0.25

0.50

0.25

0.00

93 95 97 99 01 03 05 07 09

US Equities EM Equities US Bonds

60-month Rolling Correlation with Commodities

Data from January 1, 1993 to December 31, 2009. S&P 500, MSCI EMF Gross Index (local) and Barclays US Aggregate Bond Index were used for this correlation,respectively. Past performance is no guarantee of future results.


Higher Volatility Investment

aohr ky coidrio o coodiy i i hir poil ipc o orll porolio oliliy. Exhibit 10 (next page) how

h h gsCI h dord iicly hihr oliliy h quii d bod, pcilly or h p dcd. ery h b

ky drir o h ld oliliy, coribui or h 90% o h ric i h gsCI, whil ccoui or oly bou 70% o h

idx wih (Exhibit 11, next page)


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Exhibit 10: Annualized volatilities of various asset

classes

0

5

30

15

20

25

10

US Equities International

Equities

Emerging Markets

Equities

US Bonds International

Bonds

Commodities

1/1/199012/31/2009 1/1/200012/31/2009

Annualized Volatility (%)

Data as of December 31, 2009. Past performance is no guarantee of future results.

The asset classes shown are based on the S&P 500 Index, MSCI World ex-US,JPM EMBI Global, Barclays US Aggregate, JPM Global Government Bond ex-USand GSCI, respectively.


Exhibit 11: Energy sector has accounted for most of the

GSCI volatilities

Contribution to GSCI Volatility

Energy, 92.1%

Precious Metals, 0.7%

Industrial Metals, 3.3%

Agriculature, 3.8%Livestock, 0.2%

Data from January 1, 2000 to December 31, 2009. Past performance is noguarantee of future results.

Asset class based on GSCI.


Potential Drag from the Contango Market

I ddiio o h dyic o h coodiy po rk, o u b wr h h liquid i iru ud by ior

o i xpour o coodii r coodiy uur. sic h o liquid coodiy uur h urii o o or h w

oh, o u roll xpiri corc o h x o o h r rucur. I h uur cur i bckwrdd (dowwrd lopi),

o would pro ro lli h xpiri corc hihr pric d buyi h icoi corc lowr pric. I h cur i i

coo (upwrd lopi), o h ohr hd, o would xpric lo by iply rolli h uur corc orwrd.

a how i Exhibit 12, h gsCI xpricd poii roll rur i h 1980 d 1990, dri pririly by bckwrdd ry

rk. sic h rly 2000, howr, h roll rur h bco iic dr o h orll gsCI prorc. a how i

Exhibit 13, h gsCI h rd ulizd po rur o 9.3% ic 2000. Howr, h roll rur h b o i h hxc ol rur o h idx h b ju 1.2%. I c, h roll rur dr w o r or h riculurl d liock roup

h xc rur wr iicly i duri hi priod.

Exhibit 12: Cumulative roll returns from GSCI and its

sub-components

0.0

1.0

4.0

3.0

2.0

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

GSCI Energy Industrial Metals

Agr icu ltu re Li vestock Prec ious Meta ls

Cumulative Roll Return

Data from January 1, 1970 to January 31, 2009. Past performance is noguarantee of future results.


Exhibit 13: Roll returns from 2000 have been a drag in

every commodity sector

-12

-8

-4

16%

12

8

4

0

GSCI Energy Industrial

Metals

Precious

Metals

Agricultural Livestock

Excess Return Spot Return Roll Return

S&P GSCI Indices Annualized ReturnsSince 2000 through February 8, 2010

Data from January 1, 2000 to February 8, 2010. Past performance is noguarantee of future results.



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Late to the Party?

Whil coodii h proidd ubil rur or h p dcd, w r bii o wodr i h o rc bull

rk i h cl y b bii o plu. I hiory i y uid, h h wr i crily y. a Exhibit 14illur,

coodii hioriclly h xpricd i-yr priod o ro rur, ollowd by lo, lrly idwy o i h

cl or ddiiol 15 o 20 yr. For xpl, coodii pprcid 230% i i yr ro 1971 o 1980, bor

rdi i r or 19 yr duri h 1980-2001 priod.

W d i oworhy h w y b pprochi hi do-ohi , i h w r lrdy or h ih yr io h

curr bull rk or coodii, h cuuli rur i coodii h lrdy rchd 158%or or h 70% o prior

cycl pk rurd h cl rli rh ru ock (Exhibit 15) ow ppr o b wi o h ri.

Exhibit 14: Commodity bull market possibly close

to an end?

50

100

150

00

50

300

350

00

50

00

50

00

50

700

750

00

1956

1961

1966

1971

1976

1981

1986

1991

1996

2001

2006

2009

Flat / Down

9/11/1956 - 11/16/1971

Ann. Return: -0.1%

Cum. Return: -1.3%

Ann. Volatility: 5.5%

Length: 15.2 Years

Up

11/16/1971 - 11/4/1980

Ann. Return: +14.2%

Cum Return: +230.0%


Length: 9.0 Years

Flat / Down

11/4/1980 - 11/6/2001

Ann. Return: -2.7%

Cum Return: -43.3%


Length: 21.0 Years

Up

11/6/2001 - 2/2/2010

Ann. Return: +12.1%

Cum Return: +157.7%


Length: 8.2 Years

CRB Continuous Commodity Index


Source: Bloomberg, MSIM

Exhibit 15: Commodity relative strength against stocks

also weakening

0.1

1.0

10.0

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

?

S&P 500 Index/CRB Continuous Commodity Index (Log Scale)



Conclusion: So How Much Is Enough?

Dpi o o h oriod horcoi, w do hik i k o h coodii i porolio h dy,

priculrly i h ubil ory iulu ijcd io lobl cooy. T quio h bco: How uch i ouh?

Our bic rcodio i h, ll l bi qul, 5-7% i probbly robl ubr o r (Exhibit 16). W b hi

rcodio o h ollowi:

1) sic coodii d o h hihr olilii h ohr rk, ddi h o porolio o rul i hihr rik or

h i. Whil ddi 5-7% o coodii o rdiiol 60/40 porolio would o h jor ipc o h porolio

oliliy, ddi 10% or or o coodii o h porolio i dir ory (Exhibit 17). no doub, o u blc h

poil lu-ddd ro coodii wih h hihr rik h hy bri o h porolio. Ti iw i coi wih h o

our collu Hui allidi, who hd mor sly coodiy rrch or (pl hi ull rpor, Bi ro

norlcy, July 2009, or or iih rld o udrlyi coodii d hir rol i h i/ llocio proc).

2) T cod criicl cririo or icluio i porolio llocio i h h cl hould dd diricio b. a

dicud rlir i hi ppr, coodii i rl h dord wk corrlio wih jor rkwhich i ood w.

T bd w i h i rc yr hy h bco icrily corrld o ri rk quii, d hir corrlio wih

dlopd quii h icrd iicly duri rk dowur.


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8 |

goi orwrd, w do o xpc h rur/rik ur o ch driclly or coodii rli o ohr jor rk.

Tu, llocio o 5-7% i ppropri o u, w bli h ollowi: ) coodii dr plc i uli- ric

bchrk, or hir diricio d i priculr iio-hd ur; d b) coodii hould o ccou or lr

porio o ric porolio du o hir hihly olil ur d driori diricio b.

Exhibit 16: Adding 5-7% commodities to a 60/40

portfolio has historically improved risk-adjusted

returns

0.3

0.5

1.1

0.9

0.7

0% 20% 40% 60% 80% 100%

Commodity Weight

Portfolio Return/Risk Ratio

Best Return/Risk

Trade-off

Data from January 1, 1980 to December 31, 2009. See Exhibit 5 footnotesfor details on this hypothetical portfolio. Past performance is no guarantee offuture results.


Exhibit 17: ...Although they add volatility to the

portfolio as well

9.0

9.1

9.6

9.3

9.4

9.5

9.2

0 5 7 10 15

Portfolio Volatility (%)

Commodity Weight (%)

Data from January 1, 2000 to December 31, 2009. See Exhibit 5 footnotesfor details on this hypothetical portfolio. Past performance is no guarantee offuture results.



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Coodii: Frid or Fo

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Disclosures

T iw xprd r ho o h uhor o Fbrury 19, 2010. T uhor iw r ubjc o ch y i du o rk or cooic codiio wihou

oic o h rcipi o hi docu. T iw xprd do o rc h opiio o ll porolio r msIm, or h iw o h r whol, d

y o b rcd i h ri d produc h h Fir or.

Ti docu h b prprd olly or ioriol purpo d i o or, or oliciio o or, o buy or ll y curiy or iru or o

pricip i y ry. Iorio i hi prio do o cod o ddr h cil objci, iuio or pcic d o y idiidul ior.

Pl coidr h i objci, rik d o h cil iru lo wih your prol uiqu iuio prior o ki y i dciio.

I ddiio, y dciio o i hould b d i rlic upo h rl ori docu o h produc cocrd. a cil proiol c hlp

ior wih hir idiidul iuio prior o ki y i dciio.

a llocio d diricio do o lii rik o lo or proc you i lo i priculr rk; howr i llow you o prd h rik croriou cl.

Pl b wr h cri cl d i r or olil h ohr, uch : Coodii r or olil h ock d bod, d ori ock

r or olil h doic ock. I ddiio, coodii d copy ock r or olil h bod, d gor bod d trury Bill r

urd o h ily py o pricipl d ir, i hld o uriy. sior lo r rlly rd blow i-rd by ri ci, d i

rr crdi rik h hihr-quliy, i- rd curii uch U. s. truri. Hd ud i y b pculi d iclud hih dr o

rik. accordily, ior could lo ll or ubil ou o hir i.

all i iol rik, icludi h poibl lo o pricipl. T commodities markets y ucu widly bd o riy o cor, icludi bu o

liid o ch i orll rk o, doic d ori poliicl d cooic d polici, wr, c o rrori, ch i doic or ori

ir r (iio r) d/or ior xpcio cocri ir r (iio r), d i d rdi ciii o uul ud, hd ud

d coodii ud. I i foreign markets il pcil rik uch currcy, poliicl, cooic, d rk rik. T rik o ii i emerging-

marketcouri r rr h h rik rlly ocid wih ori i. Real estate rik c iclud ucuio i h lu o udrlyi propri;

ch i rl d locl cooic codiio; d ohr cooic, poliicl or rulory occurrc ci h rl idury. Fixed income curiir ubjc o crdi d ir-r rik. Crdi rik rr o h biliy o iur o k ily py o ir d pricipl. Ir-r rik rr o

ucuio i h lu o xd-ico curiy ruli ro ch i h rl ll o ir r. I dclii ir-r iro, h porolio y

r l ico. I rii ir-r iro, bod pric ll. I i curii rd blow investment grade (cooly kow juk bod)

pr rr rik o lo o pricipl d ir h i i hihr-quliy curii.

P prorc i o ur o uur rul. Chr d rph proidd hri r or illuri purpo oly. Ti ril h b prprd ui ourc o

iorio rlly blid o b rlibl bu o rprio c b d o i ccurcy. Forc/i r bd o curr rk codiio, ubjc o

ch, d y o crily co o p. Prorc o ll cid idic i clculd o ol rur bi wih diidd rid. T idic do o iclud

y xp, or chr d r ud d hould o b coidrd i. a ior c o i dircly i y idx.

T iorio i hi rpor, i or ioriol purpo oly, d hould i o wy b coidrd rrch rpor ro mor sly I m

(msIm), msIm do o cr or produc rrch.


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10 |

2010: Meaningful Mean Reversion

Jury 2010a w o io 2010, ior c quio

bou y o h ky drir o h rc rk rlly. I hi l

ricl, Hry H. mcvy ru h, ulik 2009, y o h

r opporuii i h w yr will o b h obiou, culrlo-r opporuii. Rhr, h bli, 2010 will b bou

ki d o l-crowdd, cyclicl -rrio rd.

Institutional CIO Confidence Index

Jury 2010mor sly I m i proud

o iroduc i Iiuiol CIO Codc Idx. Dlopd

hrouh prrhip wih grwich aoci, h Idx

ur how cod chi i ofcr r i i

rur r or hir porolio or h x 12 oh. a

rul, w bli h h Idx proid ccur u o h

po-crii i o CIO Us public ud, corporio,

dow d oudio.

Managing Risk: Back to Basics

Dcbr 2009I h wk o h crii i lobl cpil rk,

ior r udrdbly ocud o h iu o rik d h

propr o i. Bu how xcly hould rik b dd

d pprochd? msIm Hry mcvy ru h ci rik

proc hould cr roud op-dow rwork

or i ric rik i porolio.

Scenario Analysis of Illiquidity Surges

Dcbr 2009For ior holdi illiquid , 2009

quiy rk rlly po iri dil: How do ior

hih rowh i illiquid llocio h occur rul o

ro ock rk rur? I hi ppr, w ddr hi d ohr

ky quio o porolio liquidiy, d poil illiquidiy ur,

i priod o bl d xr quiy rk rur.

Inflation Outlook: On the Razors Edge

nobr 2009a y ior worldwid r bou

poilly rii iio, msIm Hry H. mcvy poi h

rk r ih b iplcd, rui id h ucoorbly

low iio i uch bir rik o lobl rk i 2010.

Charting the Comeback Trail in Japan via

Small-Cap Equities

nobr 2009a world cooi y o h ph o rcory,

Jp ri ihr oro or oidd by o ior. I hi

ry corrc? Or r ior riki bi udrxpod o

poilly iic priod o ouprorc or Jp ock?

I o, wh pr h o rci opporuiy: lr or ll

cp? I hi ppr, w ckl h quio, d xi Jp

ock i rl d ll cp i priculr.

Recovery Myths

Ocobr 2009a h Us cooy coiu o how i o

ipro, y ior h bu o wodr bou h

uibiliy d rh o h rcory. I hi rrch rpor,

Richrd Brr ckl hi iu, d idi wh h bli rhr yh currly uli hi cooic db.

A Changing of the Guard

Ocobr 2009T lobl quiy rk rcory h o r b

dd by ro rlly i hih-b ock. Bu hiory u

h h juk rlli h ypiclly ld, o r, bou ix

oh ro h rk rouh. I hi ppr, Hry H. mcvy

ru h w r ow o h cup o jor hi i lobl quiy

rk ldrhip.

Investing in a Horizontal WorldOcobr 2009Corrlio o world cooi d

cl h icrd driclly o l. Bu i hi iuio

uibl i h lo ru? I hi ricl, Ruchir shr ru

h h c or diriio bd o locl cor i ro

d i ror.

The New Landscape for Fixed Income: From

Treasuries to TALF

Ocobr 2009a h lobl crdi crii how i o i,

iiuiol ior coro crucil iu: How o xploi

h w i ldcp o r h hihr poil

rur o quii, whil rii o ii h lowr oliliy

o ocid wih xd ico? I hi whi ppr, w

ddr hi quio, d propo rwork hrouh which

ior c up opporuiic xd-ico porolio.

Financials: Less Bang for Your Beta

spbr 2009T gr Rcio h udoubdly k

hy oll o cil. Bu ow h h dowur h bu

o how i o bi, how c ior b xplor poil

opporuii wihi h cor? I hi ppr, Hry mcvy

ckl hi ky iu, d hr hi oulook or cil.

Convertible Bonds: Back in the Spotlight

auu 2009Whil opii ppr o h rurd o

lobl cpil rk, ucriy urroudi h ii o h

cooic rcory h ld o ior o ri idlid uil

uibl rcory proc bco or clrly dd. Bu

how do you dri opil rk ry poi? I hi ppr,

w ii coribl bod poil oluio o h

curr rk-ii dil.

mor sly I m PublicioFollowing are recent thought-leadership papers covering a range of investment issues


11/12

| 11

For a copy of any of these papers, please e-mail us at [email protected] or visit our website atwww.morganstanley.com/im.

T iw d opiio xprd wihi h publicio r ho o h uhor, r bd o r hy xi o h d o prprio d

o o y uur d, d will o b updd or ohrwi rid o rc iorio h ubquly bco ilbl or circuc xii,

or ch occurri, r h d hro.

US Corporate ProfitabilitySupport on the Margin

auu 2009alhouh Us corpor ri h droppd

ply ic h r o h gr Rcio, ri or o-

cil r h b urpriily rili coprd o priou

dowur. Wh do h o quiy rdi ll? Do hi

rpr cicl opporuiy? Hry mcvy proid wr i

hi ricl.

Challenges to Rebalancing the US Economy

July 2009T lobl cil crii h xpod h ulrbiliy

o ublcd Us d lobl rowh. T ui rcio,

howr, i ow hlpi o rblc h Us cooy. T

quio ow i: Will hi rblci proc b bi or

cooi d rk, or will i b dirupi? I hi ppr, w

ckl hi difcul quio by xii h chll hd

or h Us cooy.

The Renaissance of Global Macro Investing

July 2009I hi iuurl ricl ic ruri o mor sly,Hry mcvy, msIm Hd o globl mcro d a allocio,

hihlih hi curr iw o h dircio o cil rk, d

ru h ky upho o h gr Rcio will b ud

rol or h rdiiol op-dow, cro-ii pproch.

Operational Improvement: The Key to Value Creation

in Private Equity

July 2009T lobl cil crii i rhpi h pri

quiy ldcp. Whil liri ih crdi h icrd

copiio or w dl, opporuii or ho ru o o

udrprori i r ow liid. a rul, pri

quiy r h bco or dpd o hir biliy o

ipro opriol prorc i ry dl o r rci

rur. Bu wh i h b wy o hc oprio d ulock

lu ro porolio copi? I hi ppr, w xi h

y pproch r c k i dployi opriol xpri.

Surplus Targets and Percentile Fans

Ju 2009Whil i ud ll o urplu (or

dci) hould o, by il, dri i i ry,

y iord porolio dciio hould k h ubr io

coidrio. Bu o, quio ri: How c ud

r dri, or xpl, h h ll o quiy bxpour o hir porolio i dqu o hir uur d? I hi

ppr, w ddr hi d ohr iu, proidi rwork or

udrdi b xpour.

How the Tight Credit Market Is Augmenting the

Investment Opportunity for Private Debt Capital

my 2009T dilocio i h crdi rk h h

or widi p bw h upply o, d dd or, cpil.

Wh oluio could poilly ll hi p? Ti ppr u h

cobiio o rdiiol d o-rdiiol ourc o db

cpil hould r i rpo o hi iblc. spciclly, wbli h pri crdi cpil ri iddl-rk iur i

likly o b ipor ocu or ior.

Return Targets and Percentile Fans

my 2009a porolio b xpour h rdiiolly b

ky cor iuci h propc or rchi rur r.

Bu how uch b do o d o icr o chc o

xcdi h rik-r r or o-yr priod? Corly,

how uch b rik i cry o iy r rur i h

lo ru? I hi ppr, w ddr h iu, d proid

coplli rwork or udrdi b xpour.

Looking Beyond the Valley: Identifying Cross Asset-

Class Opportunities

my 2009T lobl cooic crii h k hy

oll o pric cro h i pcru, icludi

quii, crdi d coodii, cri ubr o dird

i opporuii. Y, y ior r ill wodri

how o b h opporuii, d how o rblc hir

porolio or opil poil rur. Ti ppr ddr h

quio, d ly ou coprhi rodp or ior o

u h curr opporuii d plc h i h propr

hioricl cox.

Accessing Investment Opportunities in a Real

Estate Recession

my 2009W bli h h o r cooic crii ic

World Wr II i cri h o coplli corcil rl

opporuii i rio. I hi ppr, w xi h

cu o h ooi rk corrcio, quiy h ipc o

h crii o d, d copr h curr rl rcio o

p rk dowur. Du o h uiqu cobiio o

h prcipid h curr lowdow, ior could h h

chc o purch h db d/or quiy o rl wh wiw hioriclly rci r.


12/12

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