Morgan Stanley ETF Unit Will Focus on Active Funds

Morgan Stanley’s recently launched exchange-traded fund unit will focus on actively managed funds, according to the business’s head, as that segment of the industry seeks to expand from the small niche it currently occupies. 

“There's no doubt active management is where we're focused in additional series of ETFs,” Anthony Rochte, global head of ETFs at Morgan Stanley, told ETF.com at the Exchange conference in Miami Beach, Florida. “At the core of Morgan Stanley Investment Management is active management; that’s what we do.” 

The New York-based wealth management and financial services giant made its long-planned return to the ETF industry Feb. 1 with the launch of six Calvert Research Management-branded ETFs, focused on environmental, social and governance. Calvert is part of Morgan Stanley Investment Management. Morgan Stanley helped pioneer the ETF industry before leaving it in the 1990s. 

“In the next suite of products you could expect to see from us, the ETF platform would be active, transparent,” Rochte said, adding that the firm is looking to launch funds across its Calvert, Eaton Vance and Morgan Stanley brands. Transparent funds provide daily disclosure of portfolio holdings. 

Active funds make up 5% of the $7 trillion U.S. ETF industry, Rochte said: “We know that’s growing faster off a much smaller base. And we see significant uptick in active transparent fixed income purchasing.” 

Active Funds’ Risks 

Moving exclusively into active funds may carry risks. Passive funds make up an outsized part of the industry because they typically track an index; without a manager picking the stocks, they are cheaper to run, and cost savings are passed along to the investor. They follow conventional investing wisdom that indexes perform better than picking stocks and timing the market in the long run.  

Still, $57.4 billion flowed into active products last year, according to ETF.com data, as passive investments were clobbered by falling markets. Active funds, which began in 2008, make up $407.9 billion of the ETF market.  

Financial professionals see that smaller segment growing. There are currently 1,027 actively managed ETFs on U.S. markets.  

As Morgan Stanley looks to add to its product suite in multiple asset classes, transparent, fixed income products are squarely in focus, Rochte said.  

“We see significant uptick in active transparent fixed income purchasing,” Rochte said. “That's something that we're paying close attention to.” 

Contact Shubham Saharan at [email protected]