Morgan Stanley Investment Management Expands ETF Platform with Eaton Vance Floating-Rate Strategy

Rhea-AI Summary

Morgan Stanley Investment Management (MSIM) has announced the launch of its latest ETF, Eaton Vance Floating-Rate ETF (EVLN), an actively managed senior loan strategy. The ETF seeks to provide a high level of current income through a portfolio comprised of floating-rate credit investments, managed by MSIM's investment team dedicated exclusively to loan management. The strategy combines a bottom-up approach with the additional tax benefits and intra-day liquidity that the ETF structure provides. MSIM's ETF platform has over $600 million in assets under management as of February 2, 2024.

Insights

Financial Analyst

The launch of the Eaton Vance Floating-Rate ETF (EVLN) by Morgan Stanley Investment Management represents a strategic expansion in the ETF market, particularly in the floating-rate credit investment space. From a financial perspective, the introduction of EVLN is a noteworthy development for income-focused investors, as it provides exposure to floating-rate corporate term loans, which can be attractive during periods of rising interest rates. The floating-rate feature of these loans typically allows for adjustments in the interest payments that investors receive, which can mitigate the risk of interest rate hikes eroding the value of fixed-income investments.

Furthermore, the ETF's active management approach, leveraging MSIM's established loan platform, suggests a potential for outperforming passive loan investment strategies. The fund's management team's expertise could offer a competitive advantage in credit management and portfolio construction. With over $30 billion in client assets globally under its loan management, MSIM's track record in this niche could instill investor confidence.

Considering the ETF platform's growth to over $600 million in assets under management since its inception in February 2023, the addition of EVLN could further scale the platform's offerings and attract additional capital inflows. However, investors should be aware of the inherent risks associated with high-yield bonds and collateralized loan obligation debt tranches that are part of the fund's allocation, which could introduce higher volatility and credit risk.

Market Research Analyst

The launch of EVLN comes at a time when the ETF industry is experiencing significant growth and diversification. MSIM's foray into this space with a dozen ETF strategies since February 2023 indicates an aggressive pursuit of market share and product differentiation. The decision to list EVLN on the NYSE enhances its visibility and accessibility to a broad investor base, potentially increasing its market penetration.

Actively managed ETFs such as EVLN are gaining popularity as they combine the benefits of active management with the flexibility and tax efficiency of ETFs. This hybrid approach is particularly appealing to investors who seek higher yields but are also conscious of market volatility and liquidity concerns. By offering intra-day liquidity, EVLN addresses one of the main advantages of ETFs over traditional mutual funds.

Strategically, this launch aligns with the broader trend of investment firms leveraging their niche expertise to create specialized products. MSIM's emphasis on its 'differentiated investment capabilities' suggests a focus on capitalizing on its established reputation in loan investment management to compete in the crowded ETF market. The success of EVLN could influence peer firms' product development strategies and contribute to the evolution of the ETF landscape.

Economist

The introduction of the Eaton Vance Floating-Rate ETF (EVLN) can be seen as a response to the current economic environment, where interest rates are a central concern for investors and policymakers alike. Floating-rate investments typically become more attractive in a rising interest rate environment, as they offer a hedge against inflation and interest rate risk. This characteristic may increase the demand for such products among investors anticipating or experiencing an interest rate hike cycle.

Moreover, the active management component of EVLN suggests that MSIM is positioning itself to take advantage of economic and market signals to optimize returns for investors. This is particularly relevant in a complex credit market where the ability to navigate credit risk and identify undervalued assets can significantly impact performance.

It is also important to consider the broader economic implications of the growing ETF market. As more capital is allocated to these instruments, it could influence the liquidity and stability of the underlying assets, such as corporate term loans and high-yield bonds. Economic stakeholders, including regulators and market observers, will need to monitor the impact of these investment vehicles on market dynamics and financial stability.

 

NEW YORK--(BUSINESS WIRE)-- Morgan Stanley Investment Management (“MSIM”) today announced the launch of its latest ETF, Eaton Vance Floating-Rate ETF (Ticker: “EVLN”), an actively managed senior loan strategy. EVLN is the twelfth ETF strategy brought to market since the launch of MSIM’s ETF platform in February 2023 and is listed on the NYSE.

“We are pleased to expand MSIM’s ETF Platform with EVLN and continue to deepen our offering with strategies that reflect our differentiated investment capabilities and client-focused approach,” said Anthony Rochte, Global of Head of ETFs at MSIM. “A pioneer in senior loan investment management, the industry-leading team established its loan platform thirty-five years ago and today manages over $30 billion in client assets globally. This strategy makes use of that deep loan market expertise and the in-demand ETF structure to meet the needs of a broader range of income clients.”

The actively managed EVLN will seek to provide a high level of current income through a portfolio comprised no less than 80% in floating-rate credit investments, the majority of which are expected to be the floating-rate corporate term loans at the center of the team’s investment capability. Supporting allocations to high-yield bonds and collateralized loan obligation debt tranches will broaden the opportunity set. The strategy will be managed by MSIM’s investment team dedicated exclusively to loan management, delivering the same approach to credit management and portfolio construction employed in the team’s mutual funds and other vehicles.

“EVLN delivers our longstanding approach to loan investing in a tradable format,” said Andrew Sveen, portfolio manager, Head of Floating-Rate Loans and Chairman of MSIM Fixed Income. "The strategy combines our time-tested bottom-up approach with the additional tax benefits and intra-day liquidity that the ETF structure provides.”

This latest ETF complements the existing MSIM active fixed income ETF offering which includes: Calvert Ultra-Short Investment Grade ETF (CVSB), Eaton Vance Ultra-Short Income ETF (EVSB), Eaton Vance High Yield ETF (EVHY) and Eaton Vance Intermediate Municipal Income (EVIM.) MSIM launched its ETF platform in February 2023 with six Calvert-branded ETFs and expanded the platform in October 2023 with one Parametric-branded alternative income strategy, one Parametric-branded hedged equity strategy, and the three Eaton Vance-branded fixed income strategies. The platform has over $600 million in assets under management as of February 2, 2024.

About Morgan Stanley Investment Management

Morgan Stanley Investment Management, together with its investment advisory affiliates, has more than 1,400 investment professionals around the world and $1.5 trillion in assets under management or supervision as of December 31, 2023. Morgan Stanley Investment Management strives to provide outstanding long-term investment performance, service, and a comprehensive suite of investment management solutions to a diverse client base, which includes governments, institutions, corporations and individuals worldwide. For further information about Morgan Stanley Investment Management, please visit www.morganstanley.com/im.

About Morgan Stanley

Morgan Stanley (NYSE: MS) is a leading global financial services firm providing a wide range of investment banking, securities, wealth management and investment management services. With offices in 41 countries, the Firm's employees serve clients worldwide including corporations, governments, institutions and individuals. For more information about Morgan Stanley, please visit www.morganstanley.com.

Before investing carefully consider the Fund's objective, risks, charges, and expenses available in the prospectus, please download one at https://www.eatonvance.com. Read carefully.

Risk Considerations: There is no assurance that a portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this portfolio. Please be aware that this portfolio may be subject to certain additional risks. Loans are generally associated with fixed income securities risk and are traded in a private, unregulated inter-dealer or inter-bank resale market and are generally subject to contractual restrictions that must be satisfied before a loan can be bought or sold. These restrictions may impede the Fund's ability to buy or sell loans (thus affecting their liquidity) and may negatively impact the transaction price. It may take longer than seven days for transactions in loans to settle; therefore the Fund may hold cash, sell investments or temporarily borrow from banks or other lenders to meet short-term liquidity needs. Loans to entities located outside of the U.S. may have substantially different lender protections and covenants as compared to loans to U.S. entities and may involve greater risks. Loans may be structured such that they are not securities under securities law, and in the event of fraud or misrepresentation by a borrower, lenders may not have the protection of the anti-fraud provisions of the federal securities laws. Loans are also subject to risks associated with other types of income investments. Fixed-income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest-rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In a rising interest-rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. In a declining interest-rate environment, the portfolio may generate less income. In addition to fixed income securities risk, asset-backed securities are subject to the risk that various federal and state consumer laws and other legal and economic factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some also entail prepayment risk and extension risk, and may become more volatile in certain interest rate environment. Collateralized loan obligations carry additional risks such as the Fund may invest in CLOs that are subordinate to other classes and the complex structure may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results. Distressed and defaulted securities are speculative and involve substantial risks in addition to the risks of investing in high yield securities, which are lower rated securities that may have a higher degree of credit and liquidity risk. The Fund will generally not receive interest payments on the distressed securities and the repayment of principal may also be at risk. These securities may present a substantial risk of default or may be in default at the time of investment, requiring the Fund to incur additional costs. Mezzanine investments are subordinated debt securities, thus they carry the risk that the issuer will not be able to meet its obligations and that the mezzanine investments may lose value. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. The risks of investing in emerging market countries are greater than the risks generally associated with investments in foreign developed countries. Currency fluctuations could erase investment gains or add to investment losses. Illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk). Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, correlation and market risks. Portfolio Turnover. Consistent with its investment policies, the Fund will purchase and sell securities without regard to the effect on portfolio turnover. Higher portfolio turnover will cause the Fund to incur additional transaction costs. Active Management Risk. In pursuing the Portfolio’s investment objective, the Adviser has considerable leeway in deciding which investments to buy, hold or sell on a day-to-day basis, and which trading strategies to use. The success or failure of such decisions will affect performance. ETF Structure Risks. Authorized Participant Concentration Risk. The Portfolio has a limited number of intermediaries that act as authorized participants and none of these authorized participants is or will be obligated to engage in creation or redemption transactions. As a result, shares may trade at a discount to net asset value (“NAV”) and possibly face trading halts and/or delisting. Cash Transactions Risk. Unlike certain ETFs, the Fund may effect creations and redemptions in cash or partially in cash. Therefore, it may be required to sell portfolio securities and subsequently recognize gains on such sales that the Fund might not have recognized if it were to distribute portfolio securities in-kind. As such, investments in shares may be less tax-efficient. Trading Risk. The market prices of Shares are expected to fluctuate, in some cases materially, in response to changes in the Portfolio's NAV, the intra-day value of holdings, and supply and demand for Shares. The Adviser cannot predict whether Shares will trade above, below or at their NAV. may pay significantly more or receive significantly less than the Fund’s NAV per share during periods when there is a significant premium or discount. Buying or selling Shares in the secondary market may require paying brokerage commissions or other charges imposed by brokers as determined by that broker. New Fund Risk. A new portfolio's performance may not represent how the portfolio is expected to or may perform in the long term. In addition, there is a limited operating history for investors to evaluate and the portfolio may not attract sufficient assets to achieve investment and trading efficiencies.

Eaton Vance, Parametric and Calvert are part of Morgan Stanley Investment Management, the asset management division of Morgan Stanley. Morgan Stanley Investment Management Inc. is the adviser to the ETFs.

ETFs are distributed by Foreside Fund Services LLC.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240208123732/en/

Media Contact: Lauren Bellmare

Lauren.Bellmare@MorganStanley.com

Source: Morgan Stanley Investment Management

FAQ

What is the latest ETF launched by Morgan Stanley Investment Management?

The latest ETF launched by Morgan Stanley Investment Management is the Eaton Vance Floating-Rate ETF (EVLN), an actively managed senior loan strategy.

What is the ticker symbol for Eaton Vance Floating-Rate ETF?

The ticker symbol for Eaton Vance Floating-Rate ETF is EVLN.

What is the primary investment focus of EVLN?

EVLN seeks to provide a high level of current income through a portfolio comprised of floating-rate credit investments, with at least 80% in floating-rate corporate term loans.

Who is the Global Head of ETFs at Morgan Stanley Investment Management?

The Global Head of ETFs at Morgan Stanley Investment Management is Anthony Rochte.

What is the total assets under management for MSIM's ETF platform as of February 2, 2024?

The total assets under management for MSIM's ETF platform as of February 2, 2024, is over $600 million.