Three decades after helping give birth to the ETF industry, Morgan Stanley is officially back in the game in what could be a milestone moment for the investing world.
Six new products from the James Gorman-led firm began trading Wednesday, offering socially conscious strategies that target US and international equities and fixed income. They’re set to be the first of many from the bank, as they form the basis of a new ETF platform in its investment management unit.
Morgan Stanley’s arrival could be a game-changer for the $6.9 trillion US ETF arena. It was one of a tiny handful of major financial institutions with no industry presence after the capitulation of holdouts like Capital Group and Dimensional Fund Advisors over the past three years. More significantly, it commands about $5.5 trillion of assets across its wealth and investment management divisions — including hundreds of billions in existing ETFs.
The possibility that Morgan Stanley could ultimately redeploy some of those assets to its own funds raises the prospect of it rapidly becoming a major disruptive force in the industry.
“This is the first step in a series of launches,” Anthony Rochte, Morgan Stanley’s global head of ETFs, said by phone. “While we’re focusing on the US, we’re certainly working on a parallel launch in Europe down the road.”
The new products are the Calvert International Responsible Index ETF (ticker CVIE), the Calvert US Large-Cap Core Responsible Index ETF (CVLC), the Calvert US Large-Cap Diversity, Equity and Inclusion Index ETF (CDEI), the Calvert US Mid-Cap Core Responsible Index ETF (CVMC), the Calvert US Select Equity ETF (CVSE), and the Calvert Ultra-Short Investment Grade ETF (CVSB).
Calvert, a heavyweight in environmental, social and governance investing, was acquired by Morgan Stanley in the bank’s purchase of Eaton Vance Corp., which closed in 2021.
Making History
While Wednesday’s launches give Morgan Stanley its first modern-day ETFs, the bank has a storied history within the industry.
The firm was home to some of the world’s first such products in the 1990s, and was where Bob Tull — then a vice president at the bank — and a team of lawyers came up with the term “exchange-traded fund.”
Morgan Stanley was granted regulatory approval in 1996 to launch 17 ETFs known as World Equity Benchmarks (WEBS), with Barclays Plc as the fund manager. Barclays later bought and rebranded WEBS as “iShares,” which ultimately became the bedrock of BlackRock Inc. — now the largest ETF issuer in the world.
Morgan Stanley’s scale and competitive pricing means the new funds stand a better chance of success than most, according to Bloomberg Intelligence’s Eric Balchunas. The passive products — CVIE, CVLC, CDEI and CVMC — carry expense ratios of 20 basis points or cheaper, while its active ETFs — CVSE and CVSB — will charge below 30 basis points.
“They are legit low-cost,” senior ETF analyst Balchunas said. “Even though ESG is having struggles, these products will likely see some assets.”
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