INVESTMENT MANAGEMENT
FUND ANALYSIS: 31 MAY 2017
Morgan Stanley Investment Funds
Diversified Alpha Plus Fund
Commentary¹
Net Performance (%) as of 31 May 2017 2
 The goldilocks regime appears unassailable. Firm global growth and low
inflation continue to support strong earnings growth while posing no
threat to bond yields or equity multiples.
 Inflation readings released in the past two weeks were subdued. The US
core personal consumption expenditure deflator plunged to a 1.5% yearover-year growth pace in April, reversing all the increase over the past
year. Eurozone core CPI reverted to a 0.9% year-over-year pace in April,
and remains essentially unchanged since mid-2015. Japan core CPI and
Tokyo CPI just touched zero, coming back out of negative territory.
 Global rates rallied, with US and German 10-year yields falling by 14 and 12
bps, respectively. US 10-year inflation breakevens contracted and, at
1.83% they are 25 bps off the January high. The US dollar (DXY index)
extended declines, falling 2%, while gold rallied 3%. Global financials
underperformed by 2%, while rate-sensitive equity sectors rallied (MSCI
ACWI Financials vs. MSCI ACWI in local currency).
 Activity data remained firm, and this supported some cyclical assets. The
Industrials, consumer discretionary and technology sectors all
outperformed. Industrial metals rose 0.8%.
 The S&P 500 made a new high. European and Japanese equities
underperformed in local currency terms, but we expect outperformance to
resume given stronger earnings growth helped by better economic
growth, operating leverage and in the case of Japan, a weakening currency.
 China-related assets rallied as growth data indicated stability for now. Ashares were largely stable (Shanghai Composite +0.9%), while H-shares
continue to outperform (HSCEI Index +1.5%), recovering from the low
earlier in the month. In coming months, we expect the slowdown to
become more pronounced following less easy credit conditions.
 The fund was down -0.9% in the second half of May, bringing May
performance to +0.3%. The main detractors were equity positions within
our Europe recovery theme (long EMU domestic and bank stocks vs.
global equities), and positions within our Japan Reflation theme (short yen,
long TOPIX vs. US equities). Offsetting this somewhat were gains from
our newly-established long in Brazil bonds, a long in the Czech Koruna vs.
EUR and shorts in Brent oil and cyclical vs. defensive stocks.
 During the latter half of May, we opened a long position in Portuguese vs.
German 10-year bonds, as well as a long position in Brazil 5-year local
currency bonds (FX hedged) and a long in the Mexican peso vs. a basket of
EM FX. We increased our short position in cyclical vs. defensive stocks, a
short in AUD vs. USD and EUR, and a long in Greek bonds (vs. 10-year
German bunds).
Class I Shares
Asset Allocation (%) as of 31 May 2017
FOR PROFESSIONAL CLIENTS ONLY
Net Exposure4
GLOBAL EQUITY
Developed Markets
U.S. & Canada
Europe
Japan
Asia ex-Japan
Emerging Markets
GLOBAL FIXED INCOME6
Developed Markets
U.S. & Canada
Europe
Japan
Asia ex-Japan
Emerging Markets
COMMODITIES
Copper
Brent Oil
Gold
TOTAL EXPOSURE (Net of Cash)
0.2
7.6
-17.2
16.5
8.5
-0.2
-7.5
8.1
1.4
23.3
-21.9
0.0
0.0
6.8
-4.5
-4.4
-1.8
1.6
3.8
Gross Exposure5
116.5
105.7
67.5
29.3
8.5
0.4
10.8
60.3
53.5
23.3
30.2
0.0
0.0
6.8
7.8
4.4
1.8
1.6
184.6
MTD
QTD
YTD
SITC*
Since
Inception**
0.3
1.9
0.7
2.8
2.1
Diversified Alpha Plus Fund
Contribution to Absolute Return (%) as of 31 May 2017 3
MTD
QTD
YTD
SITC*
-0.7
-0.1
-0.6
0.1
Fixed Income
0.5
0.9
1.0
1.3
Commodities
0.4
0.7
0.2
0.5
Cash/Currency
0.1
0.4
0.5
1.9
Equity
Net Performance as of 31 May 2017 (€) 2
Class I shares, performance of €100 invested since change of investment team, 31 August 2011
145
140
135
130
125
120
115
110
105
100
95
Aug 11
Aug 12
Aug 13
Aug 14
Aug 15
Aug 16
For net performance since inception, please see graph on page 2.
Rolling 22-Day Volatility (%) as of 31 May 2017
16
14
12
10
8
6
4
2
0
Aug 11
Rolling 22-Day Volatility
Average
Aug 12
Aug 13
Aug 14
Aug 15
Aug 16
Past performance is no guarantee of future results.
Top Thematic Equity Pairs (%) as of 31 May 2017
Gross Gross
Long5 Short5 Net4
Long Eurozone Domestic Basket / Short U.S. Equities
17.0
-17.0
0.0
Short U.S. Cyclicals / Long U.S. Defensives
16.4
-16.4
0.0
Short U.S. Capital Goods / Long U.S. Defensives
8.2
-8.2
0.0
Long Japanese Equities / Short U.S. Equities
6.7
-6.7
0.0
Short China H-Shares / Long Global Equities
6.0
-6.0
0.0
Long Eurozone Banks / Short Eurozone Equities
5.9
-5.9
0.0
Short Global Iron Ore Mining / Long Global Equities
3.5
-3.5
0.0
Short Chinese Mid-sized Banks / Long Global Equities
2.3
-2.3
0.0
Short Global Elevators / Long Global Equities
1.0
-1.0
0.0
Long Gold Miners / Short U.S. Equities
0.8
-0.8
0.0
TOTAL EXPOSURE
68.0 -68.0 0.0
*SITC (Since Investment Team Change) = annualized performance since change of investment team and policy as of 15 August 2011.
**Inception = annualized performance since 3 June 2008, the launch date of the Morgan Stanley Investment Funds Diversified Alpha Plus VaR 400 (Euro) Fund,
managed by a different team with a different investment policy.
FUND ANALYSIS: 31 MAY 2017
Net Performance as of 31 May 2017 (€) 2
Class I shares, performance of €100 invested since inception, 3 June 2008
150
145
140
135
130
125
120
115
110
105
100
95
Jun 2008
Change of investment
team, 31 August 2011
Jun 2009
Jun 2010
Jun 2011
Jun 2012
Historical Net Exposures as of 31 May 2017 6
Jun 2013
Jun 2014
% of Portfolio
Gross Gross
Long4 Short4
Rating7
60
Long U.S. 10-Year Treasuries /
Short German 10-Year Bunds
40
20
-20
19.0
-19.0
0.0
AA+
4.2
0.0
4.2
BB
3.8
0.0
3.8
B- / NR
2.9
-2.9
0.0
Long Portuguese 10-Year Bonds /
Short Italian 10-Year Bonds
BB+ / NR
2.4
-2.4
0.0
Long Portuguese 10-Year Bonds /
Short German 10-Year Bunds
BB+ / NR
1.7
-1.7
0.0
34.0
-26.0
8.1
Long Brazil 5-Year Bonds
-40
Long Greek Bonds (Full Strip) /
Short German 10-Year Bunds
-80
-100
Equity
Fixed Income
Range
Average
Currency Breakdown as of 31 May
Commodities
Currencies
Current
2017 8
TOTAL EXPOSURE
CZK
12.4%
USD
8.3%
SEK
8.1%
MXN
6.3%
TRY
5.6%
GBP
4.9%
AUD
-8.1%
JPY
-10.0%
-19.1%
IMPORTANT INFORMATION
This document has been prepared by Morgan Stanley Investment Management Limited as a
marketing document to inform Professional Clients about certain matters concerning the Fund. It
has been prepared solely for informational purposes and does not seek to make any
recommendation to buy or sell any particular security (including Shares in the Fund) or to adopt
any specific investment strategy. Any use of this document by a financial intermediary is restricted
to clients for whom the information in this document and an investment in Shares of the Fund has
been considered to be suitable by that financial intermediary in view of that client’s situation and
purpose, subject always to the applicable regulatory standard. If such a client considers an
investment in Shares of the Fund, she/he should always ensure that she/he has satisfied
herself/himself that she/he has been properly advised by that financial intermediary about the
suitability of an investment.
Past performance is not a reliable indicator of future results. Returns may increase or decrease as
a result of currency fluctuations. The value of the investments and the income from them can go
down as well as up and an investor may not get back the amount invested. There are additional
risks involved with this type of investment. Please refer to the Prospectus and relevant Key
Investor Information for full risk disclosure.Issued and approved in the UK by Morgan Stanley
Investment Management Limited, 25 Cabot Square, Canary Wharf, London E14 4QA, authorized and
regulated by the Financial Conduct Authority.
This document has been issued by Morgan Stanley Asia Limited for use in Hong Kong and shall only
be made available to “professional investors” as defined under the Securities and Futures Ordinance
of Hong Kong (Cap 571). The contents of this document have not been reviewed nor approved by any
regulatory authority including the Securities and Futures Commission in Hong Kong. Accordingly, save
where an exemption is available under the relevant law, this document shall not be issued, circulated,
distributed, directed at, or made available to, the public in Hong Kong.
This material is not, and under no circumstances is to be construed as an offering of securities in
Korea. No representation is being made with respect to the eligibility of any recipients of this material
under the laws of Korea, including but without limitation, the Foreign Exchange Transaction Law and
Regulations thereunder. The Fund/s mentioned herein this material may or may not have been
registered with the Financial Services Commission of Korea under the Financial Investment Services
and Capital Markets Act and may not be offered directly or indirectly, in Korea or to any resident of
Korea except pursuant to applicable laws and regulations of Korea.
© 2017 Morgan Stanley
Net3
NR / NR
Long U.S. 10-Year TIPS
0
-60
FOR PROFESSIONAL CLIENTS ONLY
Jun 2016
Top Fixed Income Positions as of 31 May 2017 6
80
EUR
Jun 2015
Source: Morgan Stanley Investment Management; Bloomberg (unless otherwise stated).
Past performance is not indicative of future results.
1.
Views expressed herein are the opinions of the Global Multi-Asset Team and are subject to
change based on market and economic conditions. These views are not necessarily
representative of Morgan Stanley Investment Management (MSIM) or the firm as a whole.
All performance figures are for the two-week period ending 31 May 2017.
2.
Performance is quoted net of investment management fees and with income reinvested. For
cash management purposes the Fund may invest shares in Morgan Stanley liquidity funds.
3.
Contribution to returns by asset class are meant to be representative of performance and
may not sum to actual.
4.
Net exposure % calculated as [(MV of long cash security and derivative positions)-(absolute
value of MV in short derivative positions)]/(portfolio MV)
5.
Gross exposure % calculated as [(MV of long cash security and derivative
positions)+(absolute value of MV in short derivative positions)]/(portfolio MV)
6.
Fixed income exposures are duration-adjusted (10-Year U.S. Treasury equivalents), with the
exception of any CDS/CDX positions, which reflect notional exposure.
7.
Ratings include derivatives. Futures and CDX are not rated (NR).
8.
Currency exposure is relative to the Fund’s base currency (EUR).
This document should not be considered to be the subject of an invitation for subscription or
purchase, whether directly or indirectly, to the public or any member of the public in Singapore other
than (i) to an institutional investor under section 304 of the Securities and Futures Act, Chapter 289
of Singapore (“SFA”), (ii) to a “relevant person" (which includes an accredited investor) pursuant to
section 305 of the SFA, and such distribution is in accordance with the conditions specified in section
305 of the SFA; or (iii) otherwise pursuant to, and in accordance with the conditions of, any other
applicable provision of the SFA.This communication is only intended for and will only be distributed
to persons resident in jurisdictions where such distribution or availability would not be contrary to
local laws or regulations. In particular, the Shares are not for distribution in the United States or to
U.S. persons.
This document contains information relating to the sub-funds (‘Funds’) of Morgan Stanley Investment
Funds, a Luxembourg domiciled Société d’Investissement à Capital Variable. Morgan Stanley
Investment Funds (the “Company”) is registered in the Grand Duchy of Luxembourg as an undertaking
for collective investment pursuant to Part 1 of the Law of 20th December 2002, as amended. The
Company is an Undertaking for Collective Investment in Transferable Securities (“UCITS”).
Applications for shares in Morgan Stanley Investment Funds should not be made without first
consulting the current Prospectus, Key Investor Information Document (KIID), Annual Report and
Semi-Annual Report ('Offering Documents'), or other documents available in your local jurisdiction,
which are available free of charge from our Registered Office: European Bank and Business Centre, 6B
route de Trèves, L-2633 Senningerberg, R.C.S. Luxemburg B 29 192. In addition, all Italian investors
should refer to the ‘Extended Application Form’, and all Hong Kong investors should refer to the
‘Additional Information for Hong Kong Investors’ section, outlined within the Prospectus.
Swiss investors are advised that copies of the Prospectus, Key Investor Information Document, the
Articles of Incorporation and the annual and semi-annual reports, in German, and further information
can be obtained free of charge from the representative in Switzerland. The representative in
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The sources for all performance are Morningstar and Morgan Stanley Investment Management
Limited. Calculations are NAV to NAV.
www.morganstanley.com/im
CRC-1656285 Exp 12/5/2017