MSD Fund Underperforms Peers, Expected to Continue Struggling.

The MS Emerging Markets Debt Fund (NYSE:MSD) is a closed-end fund that seeks high income from emerging markets debt. However, as a finance expert with experience at Bloomberg, I believe MSD is not as well-positioned as its peers and is likely to continue underperforming. The fund's performance has been inconsistent and has struggled to keep pace with its peers. Despite offering a high level of income, investors should exercise caution when investing in MSD due to its underwhelming performance.

The Morgan Stanley Emerging Markets Debt Fund (NYSE: MSD) is a closed-end fund that offers investors a high level of income from emerging markets debt. With a current yield of 10.11%, it significantly outperforms major bond indices and provides a compelling income opportunity. However, despite its high yield, the fund's performance has been inconsistent and has struggled to keep pace with its peers.

Performance Analysis

Over the past decade, MSD has delivered a total return of 81.08%, which is impressive but still lags behind the emerging market bond index's 44.26% return Morgan Stanley Emerging Markets Domestic Debt Fund ...^[1]. This discrepancy suggests that while the fund offers high income, it may not be as effective at generating capital appreciation as its peers.

Peer Comparison

When compared to other emerging market debt funds, MSD's yield of 10.11% is competitive but not exceptional. For instance, the Virtus Stone Harbor Emerging Markets Income Fund (EDF) offers a yield of 14.20%, while the Templeton Emerging Markets Income Fund (TEI) provides 9.15% Morgan Stanley Emerging Markets Domestic Debt Fund ...^[1]. While MSD's yield is close to the median of its peer group, its total return performance has been underwhelming.

Fund Management and Stability

The fund's net asset value (NAV) has risen by 10.06% over the past three years, indicating that it has been able to cover its distributions and maintain investment profits Morgan Stanley Emerging Markets Domestic Debt Fund ...^[1]. However, the fund's management has undergone changes, which could impact its future performance .

Investment Considerations

Investors seeking high income from emerging markets debt should consider the MSD's high yield. However, they should also be aware of its underwhelming performance and the potential risks associated with emerging markets. The fund's focus on U.S. dollar-denominated bonds may not fully capture the opportunities available in local currency markets, which could limit its total return potential.

Conclusion

The MS Emerging Markets Debt Fund offers a high yield and income potential, making it an attractive option for income-seeking investors. However, its inconsistent performance and underwhelming total return compared to its peers suggest that investors should exercise caution. A balanced approach, considering both income and capital appreciation, is essential when evaluating this fund.

References

Morgan Stanley Emerging Markets Domestic Debt Fund ...^[1] Seeking Alpha: MSD Not as Well Positioned as Peers and Likely to Continue Underperforming
MSD: Not As Well-Positioned As Its Peers And Likely To Continue Underperforming^[2] Seeking Alpha: The Month In Closed-End Funds: March 2023
Business Wire: Morgan Stanley Investment Management Announces Portfolio Management Change for Morgan Stanley Emerging Markets Debt Fund, Inc. and Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.