MORGAN STANLEY MAP TREND 8% INDEX SUPPLEMENT
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Filed Pursuant to Rule 424(b)(2)
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(To Prospectus dated November 16, 2017)
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Registration Statement No. 333-221595;
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333-221595-01
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GLOBAL MEDIUM-TERM NOTES, SERIES
I
Senior Notes
Morgan Stanley Finance LLC
GLOBAL MEDIUM-TERM NOTES, SERIES
A
Senior Notes
Fully and Unconditionally Guaranteed
by Morgan Stanley
Morgan Stanley MAP Trend 8%
Index
Information
For a summary of the Morgan Stanley MAP
Trend 8% Index, see “Summary of the Index” on page 11.
Investing in the securities involves
risks not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 11 and in
the relevant preliminary terms or pricing supplement, the accompanying product supplement and the accompanying prospectus.
The Securities and Exchange Commission
and state securities regulators have not approved or disapproved these securities, or determined if this index supplement, the
accompanying product supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
These securities are not deposits
or savings accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality,
nor are they obligations of, or guaranteed by, a bank.
MORGAN STANLEY
September 24, 2019
Table of Contents
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Harnessing Positive Trends in a Diversified
and Risk-Controlled Way
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2
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Why is Dynamic Allocation
Important?
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3
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The Trend-Following
Philosophy: "Cut Your Losses" and "Let Your Profits Run On"
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3
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The Trend-Following
Philosophy is Largely Behavioral
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3
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Constructing the Index
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4
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What Are the Index
Components?
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5
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How Diversified
Has the Index Been Historically?
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6
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How Does the Volatility
Target Work?
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7
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Index Performance (Simulated)
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8
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Morgan Stanley MAP
Trend 8% Index vs. Major Benchmark Indices
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9
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How Does the MAP
Trend 8% Index Compare to Modern Portfolio Theory-Based Indices Such as Morgan Stanley's ETF-MAP 2 Index?
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10
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Summary of the Index
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11
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Risk Factors
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11
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MORGAN
STANLEY MAP TREND 8% INDEX
Harnessing Positive Trends in
a Diversified and Risk-Controlled Way
The
Morgan Stanley MAP Trend 8% Index (the “Index”) uses portfolio construction concepts to seek positive-return opportunities
in different market environments.
With
potential for diversified exposure to a wide range of asset classes, the MAP Trend 8% Index utilizes a rules-based approach and
seeks to invest in assets with upward trends using liquid U.S.-listed ETFs that represent equities, treasuries, bonds and alternatives.
A daily risk-management mechanism is then applied with the aim of stabilizing the overall risk of the index.
Creating
and managing a portfolio based on these principles can be challenging and impractical. As an alternative, taking exposure to the
Morgan Stanley MAP Trend 8% Index can offer the benefits of this approach in one simple investment, with the following key features:
The
Index is calculated on an excess return basis, meaning that the Index levels represent the performance of the portfolio in excess
of the 3-month LIBOR rate. A servicing fee of 0.85% per annum (calculated on a daily basis) is included in the published level
of the Index.
This material
is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading
strategy. This material was not prepared by the Morgan Stanley Research Department. Please refer to Important Information and
Qualifications at the end of this material. The information contained herein does not constitute advice. Morgan Stanley is not
acting as your advisor (municipal, financial or otherwise) and is not acting in a fiduciary capacity.
MORGAN STANLEY MAP TREND 8% INDEX
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Why is Dynamic Allocation Important?
The
index is built according to a series of rules that determine the allocation to each asset class and Index component. These
allocations are dynamic, meaning that the Index is able to react to changes in market conditions over time and aims for more
stable returns.
Many
traditional investments offer constant exposure to a universe of assets. However, returns from these investments can be variable,
as these assets will not have consistent performance in different market conditions.
Dynamic
allocation can help to achieve more steady returns as the allocation to each asset will be adjusted across different parts of
the market cycle.
The Trend-Following Philosophy:
“Cut
Your Losses” and “Let
Your Profits Run On”
Trend-following
investing dates back to the 1700s when David Ricardo, an English political economist, put forward the golden rule: “Cut
short your losses” and “Let your profits run on.”
The Trend-Following Philosophy is
Largely Behavioral:
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•
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Investors
tend to extrapolate current price movements into the future.1
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•
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Investors
tend to sell winners too early-slowing down the price rise and hold losers too long slowing
downward moves2.
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•
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Investors
join the bandwagon and the herding effect is self-feeding.3
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1Cognitive
Bias: Tversky and Kahneman (1974)
2Disposition
Effect: Shefrin and Statman (1985), Frazzini (2006)
3Herding
effect: De Long et. al. (1990)
This material
is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading
strategy. This material was not prepared by the Morgan Stanley Research Department. Please refer to Important Information and
Qualifications at the end of this material. The information contained herein does not constitute advice. Morgan Stanley is not
acting as your advisor (municipal, financial or otherwise) and is not acting in a fiduciary capacity.
MORGAN STANLEY MAP TREND 8% INDEX
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Constructing the Index
The MAP Trend
8% Index is built upon predetermined rules and employs several key portfolio construction concepts such as “risk-budgeting”
and “trend-following.” The index is rebalanced each day using the following steps:
Step 1: Computing
Risk-Budget Weights
The historical
realized volatility of each ETF asset is calculated with an exponential decay mechanism that gives more weight to more recent
data. The risk-budget weight for each ETF is proportional to its liquidity-driven maximum allowable exposure and the inverse of
its realized volatility. This construct gives relatively more weight to lower- volatility assets and vice versa. The risk-budget
weights are normalized such that they sum to 100%.
Step 2: Analyzing
Asset-Price Trend
Each
day, the recent price trend of each ETF is monitored by comparing the current ETF price to its short-term and long-term
exponential moving averages. The resulting trend signal ranges between 0 and 1. It is the average of a long-term and a
short-term measure, with smoothing if necessary.
Step 3: Determining
Portfolio Weights
Trend
signals from Step 2 are combined with the normalized risk budget weights from Step 1 to derive the portfolio weights. Each ETF
is assigned a weight that is the product of its normalized risk-budget weight and its trend signal. Any remaining weight is assigned
to the 2-Year U.S. Treasury Index, such that the total assigned weights sum-up to 100%.
Step 4: Applying
Volatility Target
To attempt
to achieve a 8% annualized volatility, the Index adjusts the exposure to the selected portfolio (as constructed in Step 3) based
on a ratio of 8% to the selected portfolio’s historical realized volatility. The index’s total exposure to the ETF
assets is capped at 150%, with any unused exposure below 100% being allocated to the 2-Year Treasury Index. Additionally, a daily
cap is imposed on the amount of change in ETF asset exposure to limit the daily turnover.
This material
is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading
strategy. This material was not prepared by the Morgan Stanley Research Department. Please refer to Important Information and
Qualifications at the end of this material. The information contained herein does not constitute advice. Morgan Stanley is not
acting as your advisor (municipal, financial or otherwise) and is not acting in a fiduciary capacity.
MORGAN STANLEY MAP TREND 8% INDEX
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What Are the Index Components?
The Index provides
exposure to a range of asset classes via U.S.-listed ETFs
(the
“Index Components”). To ensure the Index remains diversified, maximum exposure limits are set at the individual Index
Component level.
The Morgan Stanley MAP Trend 8% Index Invests
in a Wide Range of Asset Classes
ASSET CLASS/
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MAXIMUM
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RISK
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ETF DESCRIPTION
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TICKER
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EXPOSURE
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BUDGET*
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Equities
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Core
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SPDR S&P 500
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SPY
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25%
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10%
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PowerShares QQQ ETF
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QQQ
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25%
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10%
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iShares Russell 2000
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IWM
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25%
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10%
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iShares MSCI EAFE
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EFA
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5%
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2%
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iShares MSCI Emerging Markets
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EEM
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5%
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2%
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Others
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iShares Edge MSCI Minimum Volatility USA
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USMV
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5%
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2%
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iShares Nasdaq Biotechnology
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IBB
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5%
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2%
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iShares Select Dividend
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DVY
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3%
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2%
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Fixed Income
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Core
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iShares 20+ Year Treasury Bond
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TLT
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25%
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10%
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iShares 7-10 Year Treasury Bond
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IEF
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25%
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10%
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iShares iBoxx High-Yield Corporate Bond
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HYG
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25%
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10%
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iShares iBoxx Investment-Grade Corporate Bond
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LQD
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5%
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2%
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iShares Core U.S. Aggregate Bond
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AGG
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5%
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2%
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Others
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iShares TIPS Bond
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TIP
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5%
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2%
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iShares JPMorgan USD Emerging Markets Bond
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EMB
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5%
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2%
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iShares U.S. Preferred Stock
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PFF
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3%
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2%
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Alternatives
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SPDR Gold Shares
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GLD
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10%
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5%
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United States Oil
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USO
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10%
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5%
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Vanguard REIT ETF
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VNQ
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10%
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5%
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The PowerShares DB U.S. Dollar Index Bullish Fund
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UUP
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10%
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5%
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Short-Term Treasuries
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2-Year U.S. Treasury Note Index
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Any excess budget
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0%
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*Rounded
to the nearest percentage point.
This material
is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading
strategy. This material was not prepared by the Morgan Stanley Research Department. Please refer to Important Information and
Qualifications at the end of this material. The information contained herein does not constitute advice. Morgan Stanley is not
acting as your advisor (municipal, financial or otherwise) and is not acting in a fiduciary capacity.
MORGAN STANLEY MAP TREND 8% INDEX
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How Diversified Has the Index Been Historically?
The below
chart shows the average exposure that the Index would have taken to different asset classes over different years.
The shifts
in allocations over time demonstrate how the strategy reacts to different market cycles, and reallocates between different asset
classes accordingly. For example:
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•
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During
the market rally of 2003-2007, the Index would have an approximate 100% average exposure
to equities, bonds and alternatives.
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•
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However,
in the 2008-2009 credit crisis, the Index would have an approximate 50% average allocation
to 2-Year U.S. Treasuries.
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In
the post-crisis recovery period from 2010 to present, the Index would have increased
its exposure to riskier asset classes (equities, bonds and alternatives).
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MAP Trend 8% Index Monthly Average Allocations
by Asset Class*
* From
September 22, 2003 to July 31, 2019. The Index came into existence on July 31, 2019.
All data
prior to that are simulated.
Source: Morgan
Stanley
This
material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any
trading strategy. This material was not prepared by the Morgan Stanley Research Department. Please refer to Important Information
and Qualifications at the end of this material. The information contained herein does not constitute advice. Morgan Stanley is
not acting as your advisor (municipal, financial or otherwise) and is not acting in a fiduciary capacity.
MORGAN STANLEY MAP TREND 8% INDEX
|
MORGAN STANLEY MAP TREND 8% INDEX
How Does the Volatility Target Work?
The Index aims
to maximize returns across a diversified portfolio of assets for a defined level of risk. On a daily basis, the Index methodology
monitors the volatility of this portfolio and adjusts the exposure so that the targeted annualized volatility of the Index remains
around 8%.
This
means that in higher volatility environments, the Index will take less exposure to the portfolio and more exposure to 2-Year U.S.
Treasuries. As volatility falls, the Index will take more exposure to the portfolio (up to the maximum limit of 150%) and reduce
exposure to 2 -Year U.S. Treasuries. The overall goal of this “volatility target” mechanism is for the returns of
the Index to be smoother than they would be otherwise.
What
is the Exposure to the Portfolio of Index Components in Different Market Conditions?
Source: Morgan
Stanley, illustrative only
Volatility Target Mechanism
The aim of the volatility target mechanism
is to stabilize the realized volatility of the Index at approximately 8%, by adjusting the allocation between the portfolio of
Index Components and 2-Year U.S. Treasuries.
The minimum and maximum exposure of the Index
to the portfolio of Index Components are 0% and 150%, respectively. The allocation to 2-Year U.S. Treasuries will be the difference
between 100% and the actual exposure to the ETFs.
What is Volatility?
Volatility is a measure for how much
the price of an asset has changed over time. An asset with low volatility will typically have a stable price, whereas an asset
with high volatility will have a price that can fluctuate quite frequently and sharply. Higher volatility is therefore typically
associated with higher risk.
Historic volatility (also called “realized
volatility”) is calculated by looking at historical prices for an asset over a set period, and measuring how much these historical
prices vary from the average historical price over that same period.
Historically, realized volatility tends
to be higher when markets are falling. The realized volatility of a portfolio can be decreased by reducing the allocation to volatile
assets and replacing it with exposure to the 2-Year U.S. Treasury Index, which has a very low volatility.
This material
is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading
strategy. This material was not prepared by the Morgan Stanley Research Department. Please refer to Important Information and
Qualifications at the end of this material. The information contained herein does not constitute advice. Morgan Stanley is not
acting as your advisor (municipal, financial or otherwise) and is not acting in a fiduciary capacity.
MORGAN STANLEY MAP TREND 8% INDEX
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Index Performance (Simulated)
The Morgan Stanley
MAP Trend 8% Index generated steady, positive growth through a variety of market environments due in part to the daily trend-allocation
process that adapts to market changes and the daily risk-management mechanism that mitigates potential risks.
Index Performance (Simulated)
Morgan Stanley MAP
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Annualized
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Maximum
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Trend 8% Index
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Return
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Volatility
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Sharpe
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Drawdown
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2003 1
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6.37%
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7.63%
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0.83
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1.65%
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2004
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12.67%
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7.84%
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1.62
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6.97%
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2005
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5.05%
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7.86%
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0.64
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5.94%
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2006
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7.75%
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7.23%
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1.07
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6.88%
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2007
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3.81%
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7.90%
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0.48
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4.73%
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2008
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1.61%
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7.81%
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0.21
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12.00%
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2009
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9.59%
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7.18%
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1.34
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7.32%
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2010
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18.57%
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8.43%
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2.20
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5.00%
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2011
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9.07%
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8.70%
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1.04
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7.06%
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2012
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10.10%
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7.12%
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1.42
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5.43%
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2013
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10.26%
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7.67%
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1.34
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5.54%
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2014
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12.04%
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7.25%
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1.66
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4.22%
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2015
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-3.75%
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9.37%
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-0.40
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11.08%
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2016
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7.81%
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7.87%
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0.99
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5.67%
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2017
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10.11%
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5.20%
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1.94
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2.73%
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2018
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-9.16%
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9.25%
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-0.99
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13.28%
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2019 2
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11.49%
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6.17%
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1.86
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10.88%
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2003 - 2019 *
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7.59%
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7.76%
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0.98
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13.28%
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7 Year Trailing *
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5.35%
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7.70%
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0.69
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13.28%
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5 Year Trailing *
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3.95%
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7.87%
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0.50
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13.28%
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3 Year Trailing *
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3.02%
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7.38%
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0.41
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13.28%
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1 Year Trailing *
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2.96%
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7.81%
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0.38
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11.76%
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* Annualized
return
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1
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Simulated
returns from September 22, 2003 to December 31, 2003
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2
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Simulated
returns from January 1, 2019 to July 31, 2019
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Back-testing and other statistical analyses
provided herein use simulated analysis and hypothetical circumstances to estimate how the Index may have performed between September
22, 2003 and July 31, 2019, prior to its actual existence. The results obtained from such back-testing should not be considered
indicative of the actual results that might be obtained from an investment in the Index. The actual performance of the Index may
vary significantly from the results obtained from back-testing. Unlike an actual performance record, simulated results are achieved
by means of the retroactive application of a back-tested model itself designed with the benefit of hindsight and knowledge of factors
that may have possibly affected its performance. Morgan Stanley provides no assurance or guarantee that any product linked to the
Index will operate or would have operated in the past in a manner consistent with
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these materials. Actual results
will vary, perhaps materially, from the simulated returns presented in this document. Because certain ETFs included in the sub-asset
classes existed for only a portion of the back-tested period, substitute data has been used for portions of the simulation. Wherever
data for one or more ETFs did not exist, the simulation has included the value of each ETF’s benchmark index or reconstruction
thereof less the relevant current expense ratio. The ETFs (and corresponding fund inception dates) for which data has been used
for all periods prior to the relevant inception date are: USMV (October 20, 2011), DVY (November 7, 2003), HYG (April 11, 2007),
AGG (September 26, 2003), EMB (December 19, 2007), TIP (December 5, 2003), PFF (March 30, 2007), GLD (November 18, 2004), USO (April
10, 2006), VNQ (September 29, 2004) and UUP (February 20, 2007).
|
This material
is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading
strategy. This material was not prepared by the Morgan Stanley Research Department. Please refer to Important Information and
Qualifications at the end of this material. The information contained herein does not constitute advice. Morgan Stanley is not
acting as your advisor (municipal, financial or otherwise) and is not acting in a fiduciary capacity.
MORGAN STANLEY MAP TREND 8% INDEX
|
Morgan Stanley MAP Trend 8% Index vs. Major
Benchmark Indices*
|
Morgan Stanley
|
|
Bloomberg Barclays
|
|
|
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MAP Trend 8%
|
|
U.S. Aggregate Bond
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|
Bloomberg
|
|
Index
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S&P 500 Index
|
Index
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MSCI World Index
|
Commodity Index
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(Excess Return)
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(Excess Return)
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(Excess Return)
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(Excess Return)
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(Excess Return)
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12-Month Return1
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2.96%
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5.24%
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5.34%
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1.61%
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-7.76%
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3-Year Return2
(Annualized)
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3.02%
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11.27%
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0.32%
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9.03%
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-2.48%
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5-Year Return3
(Annualized)
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3.95%
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9.94%
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1.75%
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6.34%
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-9.48%
|
|
|
Full-Period
Return4
(Annualized)
|
7.59%
|
7.30%
|
2.36%
|
6.40%
|
-2.95%
|
|
|
Full-Period
Volatility
(Annualized)
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7.76%
|
18.07%
|
3.56%
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15.56%
|
16.63%
|
|
|
Full-Period
Sharpe Ratio
|
0.98
|
0.40
|
0.66
|
0.41
|
-0.18
|
|
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Maximum Yearly
Drawdown5
|
13%
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52%
|
6%
|
56%
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58%
|
|
|
Full Period
Correlation
to MAP Trend
|
100%
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67%
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16%
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63%
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27%
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|
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Source:
Morgan Stanley
¹
Simulated returns for the Index are from July 31, 2018 to July 31, 2019.
²
Simulated returns for the Index are from July 29, 2016 to July 31, 2019.
³
Simulated returns for the Index are from July 31, 2014 to July 31, 2019.
|
⁴
Returns for the Index are from September 22, 2003 to July 31, 2019.
⁵
Maximum peak-to-trough decline over rolling 12-month periods.
|
*Because the
2-Year U.S. Treasury Note Index and certain ETFs included in the Index Components existed for only a portion of the
back-tested period, substitute data has been used for portions of the simulation. Please see “Index Performance
(Simulated)” on Page 8 for more details.
This material
is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading
strategy. This material was not prepared by the Morgan Stanley Research Department. Please refer to Important Information and
Qualifications at the end of this material. The information contained herein does not constitute advice. Morgan Stanley is not
acting as your advisor (municipal, financial or otherwise) and is not acting in a fiduciary capacity.
MORGAN STANLEY MAP TREND 8% INDEX
|
How Does
the MAP Trend 8% Index Compare to Modern Portfolio Theory-Based Indices Such as Morgan Stanley’s ETF MAP 2 Index?
Highest
1-Year Rolling Risk-Adjusted Returns*
•
No single Portfolio Construction systematically outperforms the other one.
3M Rolling Correlation Between MS
MAP Trend 8% and MS MAP 2 Indices*
•
The long-term correlation is ~70%, but can vary significantly over time.
Composite Portfolio¹ Sharpe Ratio
for 2008-2019 period*.
•
Blending two portfolio construction methodologies might create a more stable portfolio.
*The
Index came into existence on July 31, 2019. All data prior to that are simulated.
Source:
Morgan Stanley
1
ETF-MAP 2 data have been normalized for servicing fee and cash return difference (this version of the index is hypothetical
and all associated data have been created for comparison purposes only)
This
material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any
trading strategy. This material was not prepared by the Morgan Stanley Research Department. Please refer to Important Information
and Qualifications at the end of this material. The information contained herein does not constitute advice. Morgan Stanley is
not acting as your advisor (municipal, financial or otherwise) and is not acting in a fiduciary capacity.
MORGAN STANLEY MAP TREND 8% INDEX
|
Summary of the Index
The
Morgan Stanley ETF-MAP Trend 8% Index (the “Index”) has been developed by and is calculated, published and
maintained by Morgan Stanley & Co. LLC. ETF-MAP stands for “Exchange-Traded Fund–Multi-Asset Portfolio.”
The Index was established on July 31, 2019, and employs a rules-based quantitative strategy (the “Index Methodology”)
that combines a risk-weighted approach to portfolio construction with a momentum-based, or trend-following, asset allocation methodology
to construct a notional portfolio. In addition, the strategy imposes an overall volatility targeting feature upon the resulting
portfolio. The goal of the Index is to maximize returns for a given level of risk based upon recent trends in the underlying assets.
The underlying investment assumption underlying the allocation strategy is two-fold: that historical volatility of the underlying
assets can be used to risk-weight a portfolio and that past trends are likely to continue to be a good indicator of the future
performance of that portfolio.
The
components of the Index consist of (i) 20 U.S.-listed exchange-traded funds (“ETFs”), representing U.S. and non-U.S.
equities, fixed income securities, commodities and real estate, and (ii) the Morgan Stanley 2-Year Treasury Index (collectively,
the “Index Components”). The notional portfolio constructed by the Index Methodology of Index Components is
referred to as the “Asset Portfolio.” The Asset Portfolio will consist of long-only positions in each Index
Component, and each Index Component except for the Morgan Stanley 2-Year Treasury Index is subject to a maximum exposure cap.
The targeted volatility for the Index is 8% (“Volatility Target”). The Index is calculated on an excess return basis,
and therefore the level is determined by the weighted return of the Asset Portfolio reduced by the return on an equivalent cash
investment receiving the 3-month LIBOR. The Index performance is further reduced by a servicing cost of 0.85% per annum.
The
Index is rebalanced each Strategy Business Day (“Daily Rebalancing”). Upon each Daily Rebalancing for the Index,
the Index Methodology uses the pre-assigned Risk Budget assigned to each ETF and the volatility for each ETF to make initial base
allocations. The Index Methodology then calculates a signal based on the upward or downward trend of each ETF (“Trend
Signal”). The Index calculates a trend signal by observing two moving averages, one short-term and one long-term, over
different look-back periods for each respective ETF. A Trend Signal that converges towards one indicates an upward trend and a
Trend Signal that converges towards zero indicates a downward trend. Once the trend signal is calculated for each ETF, the previously
determined base allocations are scaled by the Trend Signal for each ETF by allocating more upward trending securities to the Asset
Portfolio. The magnitude of each position taken by the Index following the Trend Signal adjustment is then scaled to the Volatility
Target based on a pro-rata volatility-scaling, which seeks to achieve a balanced level of volatility in the Index’s exposure
to each of the ETFs. Once the composition of the Asset Portfolio is determined, the Index value is equivalent to the sum of each
Index Component’s market price less the 3-month LIBOR and the 0.85% per annum servicing cost.
Risk Factors
The following is a non-exhaustive
list of key risk factors related to the Index. If you are considering purchasing or investing in a product linked to the performance
of the Index, you should read and be aware of the risks inherent to this Index. You should also consult with your investment, legal,
tax, accounting and other advisors prior to investing or purchasing such products.
The
Level of the Index Can Go Down As Well As Up. There can be no assurance that the Index will achieve positive returns. The Index
tracks the performance of a rules-based investment methodology that selects a hypothetical portfolio of underlying assets to track.
The performance of the Index will depend on the performance of that hypothetical portfolio minus the sum of the 3-month LIBOR and
a servicing cost of 0.85% per annum. If the hypothetical portfolio declines in value, the Index value will also decline. Even if
the hypothetical portfolio increases in value, the Index value will nevertheless decline if the increase in the value of the portfolio
is not sufficient to overcome the deduction of the 3-month LIBOR and the servicing cost of 0.85% per annum.
The Allocation of ETFs
in the Asset Portfolio is Determined in Reference to each ETF’s Risk Budget and Volatility. The allocation of each ETF
in the asset portfolio is determined in proportion to its pre-set risk budget. The risk budget does not change during the life
of the Index and there is no guarantee that the risk budget allocated to each ETF is the optimal allocation. A higher or lower
risk budget could result in increased investment in an ETF that performs poorly or insufficient investment in an ETF that performs
well over the life of the Index. Volatility calculations based on historical volatility presume that historical volatility is an
accurate indication of current volatility. There is a time lag associated with the volatility calculation and there is no
|
|
guarantee that the volatility
in the preceding period is representative of the current volatility of the ETFs.
There Are Risks Associated
With the Index’s Momentum Investment Strategy. The Index is constructed using what is generally known as a momentum-based
investment strategy. Momentum-based investing generally seeks to capitalize on positive trends in the prices of assets. As such,
the composition of the Index is based on the historical performance of the ETFs over both long-term and short-term periods. However,
there is no guarantee that trends existing in the preceding periods will continue in the future.
Low Volatility in the
Index Is Not Synonymous With Low Risk in an Investment Linked to the Index. For example, even if the volatility of the Index
were to be in line with the volatility target, the level of the Index may decrease over time.
While the Index Has a
Volatility Target of 8%, There Can Be No Guarantee, Even If the Asset Portfolio Is Rebalanced Daily, That the Realized Volatility
of the Index Will Not Be Less Than or Greater Than 8%. Although the Index aims to ensure that its realized volatility does
not exceed 8%, there is no guarantee that it will successfully do so. There is also a time lag associated with the Index’s
volatility control adjustments. Because realized volatility is measured over either approximately the prior month or two months
for purposes of the volatility control feature, it may be some period of time before a recent increase in the volatility of the
ETFs in the Index is sufficiently reflected in the calculation of realized volatility to cause a compensating reallocation in the
asset portfolio.
|
MORGAN STANLEY MAP TREND 8% INDEX
|
There
Can Be No Assurance That the Actual Volatility of the Index Will Be Lower Than the Volatility of Any or All of the Index
Components. The Index’s exposure to each Index Component is adjusted through a volatility-scaling mechanism
that seeks to target a volatility of 8% for the Index. However, as the volatility-scaling mechanism looks to trends that
have occurred in the past to then make adjustments to future positions, it is unlikely that the Index will achieve the
target volatility in any Index Component for any given period of time. The actual volatility achieved by the Index overall,
as well as the volatility achieved for each Index Component, will likely differ— perhaps significantly—from
the volatility target.
The
Volatility Target Feature of the Index May Dampen its Performance in Bullish Markets. The Index is designed to achieve a volatility
target of 8% regardless of the direction of price movements in the market. Therefore, in bullish markets, if the realized volatility
is higher than the volatility target, the adjustments to the asset portfolio of the Index through daily rebalancing might dampen
the performance of the Index. The selection of the Index Components, as well as the volatility target feature, may cause the Index
to underperform one or more of the Index Components.
Each
Sub-Index’s Portfolio of Index Components Is Varied and Represents a Number of Different Asset Classes in a Number of Different
Sectors. Prospective investors should be experienced with respect to, and be able to evaluate and understand the risks of
(either alone or with the investor’s investment, legal, tax, accounting and other advisors), transactions in investments
the values of which are derived from different asset classes and sectors.
The
Future Performance of the Index May Bear Little or No Relation to the Historical or Hypothetical Retrospective Performance of
the Index. Among other things, the trading prices of the ETFs and the dividends paid on the ETFs will impact the level and
the volatility of the Index. It is impossible to predict whether the level of the Index will rise or fall. The fact that a given
allocation among the asset portfolio performed well over any look-back period does not mean that such allocation will continue
to perform well in the future. Future market conditions may differ from past market conditions, and the conditions that may have
caused the favorable historical performance may no longer exist. Furthermore, by continually seeking to track the asset portfolio
that would have been the best-performing portfolio (subject to constraints) over a look-back period, the Index may perpetually
be too late, and it may perpetually “buy high”. By the time the Index hypothetically invests in a portfolio of ETFs,
the ETFs in that portfolio may already have experienced significant appreciation. The Index may therefore perpetually make hypothetical
investments in portfolios when they are expensive, which may lead to poor returns.
The
Index Is Particularly Susceptible to “Choppy” Markets. Past performance is particularly likely to be a poor indicator
of future performance in “choppy” markets, which are characterized by short-term volatility and the absence of consistent
long-term performance trends. In such markets, strategies that use past performance as an indicator of future performance, such
as that followed by the Index, are subject to “whipsaws,” which occur when the market reverses and does the opposite
of what is indicated by past performance. The Index may experience significant declines in such markets.
The Index Has Fixed-Weighting Constraints.
The Index applies limits to the weight that may be assigned
to each ETF. These limits are fixed and may skew the allocations among the ETFs in a way that reduces the potential performance
of the Index. For example, because of the weighting constraints, the Index may not
|
|
allocate
all of its exposure to the single ETF with the best performance over the prior six months, even if that ETF had a realized
volatility of less than 8%. Instead, the weighting constraints require the Index to spread its exposure over all the ETFs,
even if one or more of those ETFs had unfavorable returns over the relevant look-back period. Additionally, the weighting
constraints mean that the Index must have some exposure to all of the ETFs at all times, even when there is no asset portfolio
that would be expected to appreciate because all are in decline. The Index will not take a “short” position
in any Index Component, even if the relevant Index Component displays a negative performance over the relevant look-back
period.
The
Index Was Established on July 31, 2019 and Therefore Has a Very Limited History. The performances of the Index and some of
the component data have been retrospectively simulated for the period from September 22, 2003 to July 31, 2019. As such, performance
for periods prior to the establishment of the Index has been retrospectively simulated by Morgan Stanley & Co. LLC on a hypothetical
basis. A retrospective simulation means that no actual investment which allowed a tracking of the performance of the Index existed
at any time during the period of the retrospective simulation. The methodology and the Index used for the calculation and retrospective
simulation of the Index has been developed with the advantage of hindsight. In reality, it is not possible to invest with the
advantage of hindsight and therefore this historical performance is purely theoretical and may not be indicative of future performance.
Because the 2-Year U.S. Treasury Note Index and certain ETFs included in the Index Components existed for only a portion of the
back-tested period, substitute data has been used for portions of the simulation. Wherever data for the Morgan Stanley 2-Year
Treasury Index or one or more ETFs did not exist, the simulation has included (i) the value of the Morgan Stanley 2-Year Treasury
Index based on simulated historical performance, and (ii) the value of each ETF’s benchmark index less the then relevant
current expense ratio. The ETFs (and corresponding fund inception dates) for which substitute data has been used for all periods
prior to the relevant inception date are: USMV (October 20, 2011), DVY (November 7, 2003), HYG (April 11, 2007), AGG (September
26, 2003), EMB (December 19, 2007), TIP (December 5, 2003), PFF (March 30, 2007), GLD (November 18, 2004), USO (April 10, 2006),
VNQ (September 29, 2004) and UUP (February 20, 2007).
The
Index is Calculated on an Excess Return Basis. The level of the Index is calculated as the excess of the weighted return of
the asset portfolio over an equivalent cash investment receiving the 3-month LIBOR. As a result, the level of the Index reflects
a deduction of the 3-month LIBOR that would apply to such a cash investment, and is less than the return on the weighted asset
portfolio. Changes in the 3-month LIBOR will affect the value of the Index. In particular, an increase in the 3-month LIBOR will
negatively affect the value of the Index.
The
Index Contains Embedded Costs. The Index contains an embedded servicing cost of 0.85% per annum, calculated on a daily basis.
Such cost is deducted when calculating the level of the Index and will thus reduce the return of the Index.
An
Investment in Instruments Linked to the Index Involves Risks Associated With Emerging Markets Equities and Bonds, Currency Exchange
Rates and Commodities.
Changes in the Value of the Index Components May
Offset Each Other. Because the Index Components represent
a range of asset classes and geographic regions, price movements of Index Components representing different asset classes or geographic
regions may not correlate with each other.
|
MORGAN STANLEY MAP TREND 8% INDEX
|
The Morgan Stanley Two
Year Treasury Index Can Produce Negative Returns, Which May Have an Adverse Effect on the Level of the Index.
Adjustments to
the Index Could Adversely Affect the Value of Instruments Linked to the Index. Morgan Stanley & Co. LLC, as the Calculation
Agent and the Index Sponsor, can add, delete and/or substitute the Index Components, and can make other methodological changes
required by certain events relating to the Index Components. Any of these actions could adversely affect the value of instruments
linked to the Index.
Reliance on Information.
Unless otherwise stated, all calculations are based on information obtained from various publicly-available sources. Morgan
Stanley has relied on these sources and not independently verified the information extracted from these sources. Morgan Stanley
shall not be liable in any way for any calculations it performs in reliance on such information.
|
|
The information used to
undertake the Daily Rebalancings for the Index will be the most up-to-date information available.
Research. Morgan
Stanley may issue research reports on securities that are, or may become, constituents of an Index Component or an Index Component.
Conflicts of Interest.
Morgan Stanley, MSFL and their affiliates may from time to time engage in transactions involving constituents of an Index Component
or one of the Index Components for their proprietary accounts and/or for accounts of their clients, may act as market-maker in
such constituents and/or be providing underwriting, banking, advisory or other services to the issuers of such constituents. Such
activities may not be for the benefit of the holders of investments related to the Index and may have a positive or negative effect
on the value of the constituents or Index Components and consequently on the value of the Index.
|
IMPORTANT INFORMATION AND QUALIFICATIONS
The
information provided herein was prepared by sales, trading, or other non-research personnel of one of the following: Morgan Stanley
& Co. LLC, Morgan Stanley & Co. International PLC, Morgan Stanley MUFG Securities Co., Ltd, Morgan Stanley Capital Group
Inc. and/or Morgan Stanley Asia Limited (together with their affiliates, hereinafter “Morgan Stanley”), but is not
a product of the Morgan Stanley Research department. This communication is a marketing communication and is not a research report.
For additional information and important disclosures, see http://www.morganstanley.com/disclaimers.
Morgan
Stanley is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute,
advice, including within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This material
is not (and should not be construed to be) investment advice (as defined under ERISA or similar concepts under applicable law)
from Morgan Stanley with respect to an employee benefit plan or to any person acting as a fiduciary for an employee benefit plan,
or as a primary basis for any particular plan investment decision.
The information
provided herein has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an
offer to buy or sell any securities or instruments or to participate in any particular trading strategy. No representation is given
with respect to accuracy or completeness, and they may change without notice. Morgan Stanley on its own behalf and on behalf of
its affiliates disclaims any and all liability relating to these materials, including, without limitation, any express or implied
representations or warranties for statements or errors contained in, or omissions from, these materials. Morgan Stanley and others
associated with it may make markets or specialize in, have or may in the future enter into principal positions (long or short)
in and effect transactions in securities or trading strategies mentioned or described herein.
Unless
stated otherwise, the material contained herein has not been based on a consideration of any individual client circumstances and
as such should not be considered to be a personal recommendation. We remind investors that these investments are subject to market
risk and will fluctuate in value. Any investments discussed in this communication may be unsuitable for investors depending upon
their specific investment objectives and financial position. Where an investment is denominated in a currency other than the investor’s
currency, changes in rates of exchange may have an adverse effect on the value, price of, or income derived from the investment.
The performance data quoted represents past performance. Past performance is not indicative of future returns. No representation
or warranty is made that any returns indicated will be achieved. Certain assumptions may have been made in this analysis, which
have resulted in any returns detailed herein. Transaction costs (such as commissions) are not included in the calculation of returns.
Changes to the assumptions may have a material impact on any returns detailed. Potential investors should be aware that certain
legal, accounting and tax restrictions, margin requirements, commissions and other transaction costs and changes to the assumptions
set forth herein may significantly affect the economic consequences of the transactions discussed herein. The information and analyses
contained herein are not intended as tax, legal or investment advice and may not be suitable for your specific circumstances. By
submitting this communication to you, Morgan Stanley is not advising you to take any particular action based on the information,
opinions or views contained herein, and acceptance of such document will be deemed by you acceptance of these conclusions. You
should consult with your own municipal, financial, accounting and legal advisors regarding the information, opinions or views contained
in this communication.
HYPOTHETICAL
PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED HEREIN. NO REPRESENTATION IS BEING MADE THAT ANY
ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES
BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF
THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION,
HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT
OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING STRATEGY
IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER
FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED
FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
Copyright © by Morgan Stanley, 2019 all
rights reserved.
© 2019 Morgan Stanley Smith Barney LLC. Member SIPC.
|
CS
8813835 04/17
|
Trailing Index Performance*
|
MS MAP Trend
8% Index
|
S&P 500
(Excess Return)
|
Barclays
Aggregate Bond
(Excess Return)
|
|
YTD Return
|
11.49%
|
18.47%
|
4.78%
|
|
1-Year Ann. Return
|
2.96%
|
5.28%
|
5.37%
|
|
3-Year Ann. Return
|
3.02%
|
11.30%
|
0.34%
|
|
5-Year Ann. Return
|
3.95%
|
9.96%
|
1.77%
|
|
10-Year Ann. Return
|
8.10%
|
13.13%
|
2.94%
|
|
10-Year Ann. Volatility
|
7.85%
|
14.89%
|
3.21%
|
|
10-Year Sharpe Ratio
|
1.03
|
0.88
|
0.91
|
|
Full Period Ann. Return
|
7.59%
|
7.33%
|
2.38%
|
|
Full Period Max. Drawdown
|
13%
|
57%
|
6%
|
|
Correlation to MS MAP
Trend 8% Index
|
100%
|
67%
|
16%
|
|
INDEX IDENTIFIER (TICKER):
MSUSMPT8
WEBSITE:
https://www.morganstanley.com/indices/mpt8/
INDEX CALCULATION AGENT:
Morgan Stanley & Co. LLC
INDEX LIVE DATE:
July 31, 2019
NUMBER OF INDEX COMPONENTS:
Maximum 21
REBALANCE FREQUENCY:
Daily
VOLATILITY TARGET:
8% Annualized
Source: Morgan
Stanley, Bloomberg
* From
September 22, 2003 to July 31, 2019.
The Index came into existence on July 31, 2019.
All data prior to that are simulated.
This
material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any
trading strategy. This material was not prepared by the Morgan Stanley Research Department. Please refer to Important Information
and Qualifications at the end of this material. The information contained herein does not constitute advice. Morgan Stanley is
not acting as your advisor (municipal, financial, or otherwise) and is not acting in a fiduciary capacity.
Monthly Average Allocations by Asset Class*
Monthly Allocations*
|
|
|
Monthly
|
Monthly
|
Cumulative
|
|
|
|
Average
|
Average
|
Return
|
Asset Class/
|
|
Maximum
|
Allocations1
|
Allocations1
|
Attributions2
|
ETF Description
|
Ticker
|
Allocation
|
June 2019
|
July 2019
|
July 2019
|
Equities
|
|
|
|
|
|
Core
|
|
|
|
|
|
SPDR S&P 500
|
SPY
|
25%
|
9%
|
10%
|
0.18%
|
PowerShares QQQ ETF
|
QQQ
|
25%
|
7%
|
7%
|
0.15%
|
iShares Russell 2000
|
IWM
|
25%
|
5%
|
9%
|
0.05%
|
iShares MSCI EAFE
|
EFA
|
5%
|
2%
|
3%
|
-0.06%
|
iShares MSCI Emerging Markets
|
EEM
|
5%
|
1%
|
2%
|
-0.05%
|
Others
|
|
|
|
|
|
iShares Nasdaq Biotechnology
|
IBB
|
5%
|
0%
|
1%
|
-0.05%
|
iShares Edge MSCI Minimum Volatility USA
|
USMV
|
5%
|
3%
|
3%
|
0.05%
|
iShares Select Dividend
|
DVY
|
3%
|
2%
|
2%
|
0.02%
|
Fixed Income
|
|
|
|
|
|
Core
|
|
|
|
|
|
iShares 20+ Year Treasury Bond
|
TLT
|
25%
|
23%
|
16%
|
-0.10%
|
iShares 7-10 Year Treasury Bond
|
IEF
|
25%
|
25%
|
24%
|
-0.04%
|
iShares iBoxx High-Yield Corporate Bond
|
HYG
|
25%
|
22%
|
24%
|
-0.03%
|
iShares iBoxx Investment-Grade Corporate Bond
|
LQD
|
5%
|
5%
|
5%
|
0.00%
|
iShares Core U.S. Aggregate Bond
|
AGG
|
5%
|
5%
|
5%
|
0.00%
|
Others
|
|
|
|
|
|
iShares JPMorgan USD Emerging Markets Bond
|
EMB
|
5%
|
5%
|
5%
|
0.02%
|
iShares TIPS Bond
|
TIP
|
5%
|
5%
|
5%
|
0.01%
|
iShares U.S. Preferred Stock
|
PFF
|
3%
|
5%
|
5%
|
0.08%
|
Alternatives
|
|
|
|
|
|
SPDR Gold Shares
|
GLD
|
10%
|
6%
|
7%
|
0.27%
|
United States Oil
|
USO
|
10%
|
1%
|
1%
|
0.00%
|
Vanguard REIT ETF
|
VNQ
|
10%
|
5%
|
6%
|
0.07%
|
The PowerShares DB U.S. Dollar Index Bullish Fund
|
UUP
|
10%
|
12%
|
10%
|
0.30%
|
Short-Term Treasuries
|
|
|
|
|
|
2-Year U.S. Treasury Note Index
|
|
100%
|
0%
|
0%
|
0%
|
Index Overview
|
•
|
Based on portfolio construction concepts that seek positive return opportunities in different market
environments.
|
|
•
|
The Index invests in liquid U.S.-listed ETFs and a 2-Year U.S. Treasuries Index giving exposure across U.S. and foreign equities,
U.S. fixed income, and alternatives such as gold, oil, U.S. dollar and REITs.
|
|
•
|
The Index attempts to build a liquid and risk-balanced portfolio. It rebalances on a daily basis
with the intent of investing in assets that exhibit upward trends and paring back investments during market downturns. Counter-trends
or reversals in trend during very short-term horizons for Equities and Alternatives are also considered, in order to capture potential
“buying-on-the-dip” opportunities.
|
|
•
|
Each asset’s allocation is proportional to its recent price trend, a fixed risk budget, and is inversely proportional
to its risk (measured as its historical realized volatility).
|
|
•
|
The portfolio targets an annualized realized volatility of 8%.
|
|
•
|
The portfolio’s performance is calculated in excess of the performance
of a cash investment receiving the 3-Month LIBOR rate.
|
|
•
|
A servicing fee of 0.85% per annum, calculated on a daily basis, is included in the published Index level.
|
* As of
July 31, 2019. The Index came into existence on July 31, 2019. All data prior to that are simulated.
¹
Computed as the average of the daily allocations over the corresponding month.
²
ETFs and 2-Year U.S. Treasury Index performance are excess return over 3-Month Libor rate. The sum of the index components’
return attribution is not equal to the Index return over that month due to the servicing fee and return compounding effects.
This
material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any
trading strategy. This material was not prepared by the Morgan Stanley Research Department. Please refer to Important Information
and Qualifications at the end of this material. The information contained herein does not constitute advice. Morgan Stanley is
not acting as your advisor (municipal, financial, or otherwise) and is not acting in a fiduciary capacity.
Monthly Returns*
|
Jan
|
Feb
|
Mar
|
Apr
|
May
|
Jun
|
Jul
|
Aug
|
Sep
|
Oct
|
Nov
|
Dec
|
Full Year
|
2019
|
3.54%
|
0.60%
|
2.90%
|
0.54%
|
-1.22%
|
3.95%
|
0.75%
|
|
|
|
|
|
|
2018
|
1.16%
|
-3.87%
|
-0.63%
|
-0.87%
|
1.50%
|
0.01%
|
1.15%
|
2.05%
|
-0.12%
|
-6.48%
|
-0.54%
|
-2.59%
|
-9.16%
|
2017
|
1.58%
|
2.75%
|
-0.95%
|
1.29%
|
0.79%
|
0.43%
|
0.95%
|
1.40%
|
-0.25%
|
0.75%
|
0.77%
|
0.21%
|
10.11%
|
2016
|
-1.74%
|
1.13%
|
1.77%
|
0.38%
|
1.09%
|
4.45%
|
2.58%
|
-0.72%
|
0.63%
|
-2.98%
|
-0.34%
|
1.51%
|
7.81%
|
2015
|
3.37%
|
0.95%
|
-0.30%
|
-0.93%
|
1.67%
|
-2.96%
|
1.11%
|
-6.73%
|
-0.92%
|
2.88%
|
0.10%
|
-1.63%
|
-3.75%
|
2014
|
1.28%
|
3.21%
|
-0.91%
|
0.93%
|
3.36%
|
1.17%
|
-2.30%
|
3.63%
|
-2.51%
|
1.80%
|
1.45%
|
0.53%
|
12.04%
|
2013
|
1.29%
|
1.06%
|
1.84%
|
2.83%
|
-1.04%
|
-2.20%
|
2.18%
|
-2.56%
|
2.95%
|
2.81%
|
-0.14%
|
1.00%
|
10.26%
|
2012
|
2.45%
|
1.34%
|
0.22%
|
1.22%
|
-1.99%
|
3.21%
|
2.57%
|
1.58%
|
0.56%
|
-2.42%
|
0.87%
|
0.21%
|
10.10%
|
2011
|
-0.03%
|
3.18%
|
0.67%
|
3.03%
|
0.61%
|
-1.76%
|
0.80%
|
-1.24%
|
-0.22%
|
2.92%
|
-0.52%
|
1.42%
|
9.07%
|
2010
|
-1.59%
|
2.36%
|
2.25%
|
3.66%
|
-1.95%
|
0.61%
|
2.92%
|
0.72%
|
3.73%
|
2.35%
|
-0.63%
|
2.92%
|
18.57%
|
2009
|
-2.46%
|
-3.20%
|
1.72%
|
1.59%
|
1.59%
|
1.11%
|
2.06%
|
0.56%
|
3.95%
|
-2.74%
|
4.68%
|
0.66%
|
9.59%
|
2008
|
-2.05%
|
0.14%
|
1.07%
|
1.87%
|
0.65%
|
-2.52%
|
0.18%
|
-0.14%
|
-1.50%
|
-6.07%
|
3.08%
|
7.47%
|
1.61%
|
2007
|
0.95%
|
0.64%
|
-0.13%
|
1.32%
|
0.74%
|
-1.06%
|
-2.20%
|
2.91%
|
2.11%
|
1.62%
|
-0.96%
|
-2.02%
|
3.81%
|
2006
|
2.62%
|
0.14%
|
0.69%
|
0.42%
|
-4.17%
|
0.30%
|
1.08%
|
2.30%
|
0.98%
|
1.84%
|
2.36%
|
-0.88%
|
7.75%
|
2005
|
-1.98%
|
1.46%
|
-2.88%
|
-0.23%
|
3.15%
|
1.80%
|
2.05%
|
0.17%
|
-0.19%
|
-1.77%
|
2.47%
|
1.08%
|
5.05%
|
2004
|
2.03%
|
2.03%
|
1.17%
|
-4.78%
|
1.02%
|
1.43%
|
-0.70%
|
2.45%
|
2.35%
|
2.06%
|
1.45%
|
1.70%
|
12.67%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Please
see Note on Simulated Returns.
¹
Data through July 31, 2019.
Source:
Morgan Stanley,
Certain Key Risks
|
•
|
The level of the Index can go down as well as up. There can be no assurance
that the Index will achieve positive returns.
|
|
•
|
The base allocation of ETFs in the asset portfolio is determined in reference to each ETF’s
risk budget and volatility and may not result in optimal allocation.
|
|
•
|
There are risks associated with a momentum based investment strategy. If market conditions do not represent a continuation
of prior-observed trends, the performance of the Index, which is rebalanced based on prior trends, may be adversely affected.
|
|
•
|
Low volatility is not synonymous with low risk in an investment linked to
the Index.
|
|
•
|
While the Index has a volatility target of 8%, it may not achieve its target
volatility, even if the asset portfolio is rebalanced daily.
|
|
•
|
There can be no assurance that the actual volatility of the Index will be lower than the volatility
of any or all of the index components.
|
|
•
|
The volatility target feature of the Index may dampen its performance in bullish
markets.
|
|
•
|
The future performance of the Index may bear little or no relation to the historical or hypothetical
retrospective performance of the Index.
|
|
•
|
The Index is particularly susceptible to “choppy” markets.
|
|
•
|
The Index was established on July 31, 2019 and therefore has a very limited
history.
|
|
•
|
As the Index is new and has very limited actual historical performance, any investment in the Index
may involve greater risk than an investment in an Index with longer actual historical performance and a proven track record.
|
|
•
|
The Index is calculated on an excess return basis. The level of the Index is calculated as the excess of the weighted return
of the asset portfolio over an equivalent cash investment receiving the 3-month LIBOR.
|
|
•
|
The level of the Index will include the deduction of a fee of 0.85% per annum.
|
|
•
|
An investment in instruments linked to the Index involves risks associated with emerging markets
equities and bonds, currency exchange rates and commodities.
|
The risks identified above are not exhaustive.
Please see the full set of risk factors included in any disclosure materials relating to instruments linked to the Index for additional
information.
This material is
not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
This material was not prepared by the Morgan Stanley Research Department. Please refer to Important Information and Qualifications
at the end of this material. The information contained herein does not constitute advice. Morgan Stanley is not acting as your
advisor (municipal, financial, or otherwise) and is not acting in a fiduciary capacity.
Note on Simulated Returns
Back-testing and other
statistical analyses provided herein use simulated analysis and hypothetical circumstances to estimate how the Index may have performed
between September 22, 2003 and July 31, 2019, prior to its actual existence. The results obtained from such “back-testing”
should not be considered indicative of the actual results that might be obtained from an investment in the Index. The actual performance
of the Index may vary significantly from the results obtained from back-testing. Unlike an actual performance record, simulated
results are achieved by means of the retroactive application of a back-tested model itself designed with the benefit of hindsight
and knowledge of factors that may have possibly affected its performance. Morgan Stanley provides no assurance or guarantee that
instruments linked to the Index will operate or would have operated in the past in a manner consistent with these materials. The
hypothetical historical levels presented herein have not been verified by an independent third party, and such hypothetical historical
levels have inherent limitations. In addition, results obtained from back-testing include hypothetical results that do not reflect
the reinvestment of dividends and other earnings or the deduction of any expenses that an investor in any product, the return of
which is linked to the performance of the Index, would have paid or actually paid and do not account for all financial risk that
may affect the actual performance of any such investment. Alternative simulations, techniques, modeling or assumptions might produce
significantly different results and prove to be more appropriate. Actual results will vary, perhaps materially, from the simulated
returns presented in this document. Because the Morgan Stanley Two Year Treasury Index and certain E TFs included in the Index
Components existed for only a portion of the back-tested period, substitute data has been used for portions of the simulation.
Wherever data for the Morgan Stanley Two Year Treasury Index or one or more ETFs did not exist, the simulation has included (i)
the value of the Morgan Stanley Two Year Treasury Index based on simulated historical performance and (ii) the value of each ETF’s
benchmark index less the relevant current expense ratio. The ETFs (and corresponding fund inception dates) for which data has been
used for all periods prior to the relevant inception date are: USMV (October 20, 2011), DVY (November 7, 2003), HYG (April 11,
2007), AGG (September 26, 2003), EMB (December 19, 2007), TIP (December 5, 2003), PFF (March 30, 2007), GLD (November 18, 2004),
USO (April 10, 2006), VNQ (September 29, 2004) and UUP (February 20, 2007). The purpose of this data substitution is to replicate
as nearly as possible the returns that would have been expected had the Morgan Stanley Two Year Treasury Index and the ETF existed
and, in the case of an ETF, tracked its relevant benchmark index.
Important Information and Qualifications
The information provided
herein was prepared by sales, trading, or other non-research personnel of one of the following: Morgan Stanley & Co. LLC,
Morgan Stanley & Co. International PLC, Morgan Stanley MUFG Securities Co., Ltd, Morgan Stanley Capital Group Inc. and/or
Morgan Stanley Asia Limited (together with their affiliates, hereinafter “Morgan Stanley”), but is not a product of
the Morgan Stanley Research Department. This communication is a marketing communication and is not a research report. For additional
information and important disclosures, see http://www.morganstanley.com/ disclaimers.
Morgan Stanley is not
acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice,
including within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This material is
not (and should not be construed to be) investment advice (as defined under ERISA or similar concepts under applicable law) from
Morgan Stanley with respect to an employee benefit plan or to any person acting as a fiduciary for an employee benefit plan, or
as a primary basis for any particular plan investment decision.
The information provided
herein has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to
buy or sell any securities or instruments or to participate in any particular trading strategy. No representation is given with
respect to accuracy or completeness, and they may change without notice. Morgan Stanley on its own behalf and on behalf of its
affiliates disclaims any and all liability relating to these materials, including, without limitation, any express or implied representations
or warranties for statements or errors contained in, or omissions from, these materials. Morgan Stanley and others associated with
it may make markets or specialize in, have or may in the future enter into principal positions (long or short) in and effect transactions
in securities or trading strategies mentioned or described herein.
Unless stated otherwise,
the material contained herein has not been based on a consideration of any individual client circumstances and as such should not
be considered to be a personal recommendation. We remind investors that these investments are subject to market risk and will fluctuate
in value. Any investments discussed in this communication may be unsuitable for investors depending upon their specific investment
objectives and financial position. Where an investment is denominated in a currency other than the investor’s currency, changes
in rates of exchange may have an adverse effect on the value, price of, or income derived from the investment. The performance
data quoted represents past performance. Past performance is not indicative of future returns. No representation or warranty is
made that any returns indicated will be achieved. Certain assumptions may have been made in this analysis, which have resulted
in any returns detailed herein. Transaction costs (such as commissions) are not included in the calculation of returns. Changes
to the assumptions may have a material impact on any returns detailed. Potential investors should be aware that certain legal,
accounting and tax restrictions, margin requirements, commissions and other transaction costs and changes to the assumptions set
forth herein may significantly affect the economic consequences of the transactions discussed herein. The information and analyses
contained herein are not intended as tax, legal or investment advice and may not be suitable for your specific circumstances. By
submitting this communication to you, Morgan Stanley is not advising you to take any particular action based on the information,
opinions or views contained herein, and acceptance of such document will be deemed by you acceptance of these conclusions. You
should consult with your own municipal, financial, accounting and legal advisors regarding the information, opinions or views contained
in this communication.
HYPOTHETICAL PERFORMANCE
RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED HEREIN. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL
OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL
PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL
PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT
INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING.
FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING STRATEGY IN SPITE OF TRADING LOSSES ARE MATERIAL
POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL
OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL
PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
© 2019 Morgan Stanley Smith Barney LLC. Member SIPC.
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