Morgan Stanley to debut first Pathway-branded ETFs #NewsMarket

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Morgan Stanley plans to convert two of its flagship equity funds totalling $3bn in assets into the manager’s very first ETFs under the “Morgan Stanley Pathway” brand, according to a regulatory filing.

It has filed to refashion the $2.6bn Morgan Stanley Pathway Large Cap Equity Fund and the $470mn Morgan Stanley Pathway Small-Mid Cap Equity Fund into ETFs, according to a filing with the Securities and Exchange Commission.

The conversions, approved unanimously by the board of trustees for the funds, will not require shareholder approval, the filings noted.

The company cited a few reasons for the conversions, including a more “attractive opportunity” for asset growth, additional trading flexibility, greater transparency and more tax efficiency, according to the filing.

This article was previously published by Ignites, a title owned by the FT Group.

The conversions are expected to take place on September 19, and the new ETFs will begin trading on the New York Stock Exchange on November 15.

Conversions tend to be focused on the smaller funds of a wider line-up of strategies, according to Morningstar analyst Dan Sotiroff.

“For these strategies, conversions are a way of making them more competitive . . . the angle here is also tax efficiency for them, which is a pretty standard piece of the conversion playbook,” he said.

The firm also offers nine additional Pathway funds that include the $1.9bn Core Fixed Income Fund, $1.3bn International Equity Fund and the $500mn Emerging Markets Equity Fund.

The two Morgan Stanley Pathways funds slated for conversion are managed and offered via the group’s wealth management unit, a company spokesperson said. The spokesperson declined to elaborate on the reasons for the conversions.

The firm entered the ETF space in February 2023, launching six such funds under its Calvert brand. It later filed for its very first mutual-fund-to-ETF conversions at the beginning of October 2023.

Currently, the company runs a suite of 15 ETFs that include the six Calvert strategies, seven under the Eaton Vance brand and two Parametric equity ETFs, according to its website.

“[Morgan Stanley] retaining their branding in this case really speaks to them getting more into the ETF game,” said Sotiroff.

The Large-Cap Equity Fund recorded $343mn in net inflows while the Small-Mid Cap Equity Fund bled $73mn for the year that ended on July 31, according to Morningstar Direct data.

Portfolio manager teams for both funds will remain unchanged, the filing said.

Morgan Stanley is also notably one of more than a dozen fund managers to have filed for an ETF multi-share class structure, having asked the SEC earlier this year for exemptive relief to offer a dual share class structure.

If approved, the process would allow the firm to offer ETF share classes of its mutual funds.

*Ignites is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at ignites.com.