MSD: Protected Against Trade Tensions, But Very Expensive

2025-02-16 09:22:20 ET

Summary

• The Morgan Stanley Emerging Markets Debt Fund offers high current income and exposure to emerging market debt, boasting a 13.27% yield, better than the bond indices.
• Despite potential risks from U.S. protectionist policies, the fund's well-diversified portfolio mitigates country-specific risks and has shown strong performance since the 2024 U.S. election.
• The fund's shares are currently trading at a 2.57% premium to net asset value, making it expensive compared to historical averages and peers.
• Investors should consider waiting for the fund to trade at a discount before purchasing, despite its low expense ratio and strong management.

The Morgan Stanley Emerging Markets Debt Fund ( MSD ) is a closed-end fund that investors can use as a way of getting a high level of current income along with exposure to the debt markets of various emerging market nations. There are relatively few of these funds around, although emerging market debt funds are somewhat more common than emerging market equity funds. This could be partially due to the fact that investing in emerging markets lost some of its appeal following the 1997 Asian financial crisis and the 2008 global financial crisis. After all, following the latter of these events, the United States began to deliver outsized returns as investment capital began to flow into this nation as something of a safe haven trade.

However, it is worth noting that emerging market bonds ( EMB ) have outperformed domestic investment-grade bonds ( AGG ) on a total return basis since January 2008:

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