This 30-name Morgan Stanley fund is up 70% this year — Here's how the manager picks winning stocks

Published Sun, Oct 18 20206:42 AM EDT

(This story is for CNBC Pro subscribers only.) While the coronavirus pandemic wreaked havoc on investors' plans this year, the market volatility played right into the hands of a relatively new fund from Morgan Stanley, which has reaped a whopping 70% return in 2020. Launched at the end of 2018, the Morgan Stanley Global Endurance Portfolio (MSJSX) stands out as one of the best-performing funds this year and is ranked number one in its category of 850 funds, according to Morningstar. For fund manager Manas Gautam, one of the most important stock-picking criteria is a company's ability to resist disruption and turbulence, which worked to the fund's advantage exceptionally this year in the face of the pandemic. It's crucial to understand "if the management of the company can withstand short-term pain and make those short-term painful decisions for long-term gains," Gautam said. The fund, while holding just about 30 stocks, is well diversified in terms of industry, region and market cap, the portfolio manager said. "It's a very bottom-up focused fund. If you look at the portfolio, you'd be asking why it is in different countries, different market caps and different industries," Gautam said. "It may seem like that but we take an interdisciplinary approach to investing and there are a lot of consistent criteria and themes that hold the portfolio together." About 35% of its holdings are international companies in seven countries including the U.K, Canada, Sweden, Germany and Poland. Meanwhile, it spans across all 11 S & P 500 sectors, with technology, health care and financials having the biggest weightings in the portfolio. "It's very vanilla in the sense that there's no options, leverages or currency hedges," Gautam said. The fund holdings include a handful of popular stay-at-home plays such as Wayfair , Zoom Video and Carvana . The fund manager said many of the classic online bets were actually made prior to the pandemic. "There's no doubt perhaps the pandemic pulled forward the future to today where a lot of these business propositions became very relevant and valuable," Gautam said. Other than endurance, the manager also pays a high attention to if the company is providing meaningful value to its end customers, growing intrinsic value for its shareholders and taking market share in its end market. The fund's single biggest holding is cloud computing services provider Fastly , which has a 14% weighting in the portfolio. The company has benefited from the meteoric growth of social media platform TikTok — its biggest customer. While the recent tensions between the U.S. and China stoked volatility in the stock, shares are still up more than 320% this year. Online used car marketplace Carvana is the fund's second largest holding, also a big winner this year. Carvana said last month that it expects to set records in several categories during its third quarter, including total revenue and retail units sold. The company is set to report earnings on Oct. 29. This bet represents a deep understanding of e-commerce business and the used car business model, the manager said. When talking about stocks benefiting from the pandemic, Gautam said one often neglected industry is home repair and remodeling. "I think this is interesting business that captures this opportunity. A lot of people have been spending a lot of money on remodeling and home furnishing. It's really interesting to see a business like Floor & Decor, which I own, participate in this $13 billion residential remodeling business," Gautam said. Floor & Decor, which specializes in tiles, has seen its stock soar nearly 70% this year. The Morgan Stanley Global Endurance Portfolio carries an expense ratio of 95 basis points and has 7.1 million in assets under management.

(This story is for CNBC Pro subscribers only.)

While the coronavirus pandemic wreaked havoc on investors' plans this year, the market volatility played right into the hands of a relatively new fund from Morgan Stanley, which has reaped a whopping 70% return in 2020.

Launched at the end of 2018, the Morgan Stanley Global Endurance Portfolio (MSJSX) stands out as one of the best-performing funds this year and is ranked number one in its category of 850 funds, according to Morningstar.

For fund manager Manas Gautam, one of the most important stock-picking criteria is a company's ability to resist disruption and turbulence, which worked to the fund's advantage exceptionally this year in the face of the pandemic.

It's crucial to understand "if the management of the company can withstand short-term pain and make those short-term painful decisions for long-term gains," Gautam said.