is expanding further into retail investing with its first exchange-traded funds, but faces a crowded field where legions of ETFs struggle to gain traction.
The $1.3 trillion asset manager today launched six ETF strategies focused on environmental, social, and governance, or ESG, investing, from pioneer Calvert Research and Management, part of Morgan Stanley (ticker: MS).
“This is our first set of ETFs that we’re launching but there will be more, both in the U.S. and, down the road, Europe,” Anthony Rochte, global head of ETFs at Morgan Stanley, told Barron’s. He said the firm was focused on “expanding choices” for financial advisors, institutions and retail investors.
“The growth of ETFs has accelerated so we want to meet clients where they are today,” he said.
The six ETFS include active and passive strategies across asset classes. The two active strategies are the Calvert U.S. Select Equity ETF (CVSE) on the stock side and the Calvert Ultra-Short Investment Grade ETF (CVSB) on the bond side.
The four index ETFs include the Calvert U.S. Large-Cap Diversity, Equity and Inclusion Index ETF (CDE); the Calvert U.S. large-cap Core Responsible Index ETF (CVLC); the Calvert US-Mid Cap Core Responsible Index ETF (CVMC); and the Calvert International Responsible Index ETF (CVIE).
The large-cap, mid-cap, and international ETFs offer investors a mutual fund strategy in a lower-cost, tax-efficient ETF format.
Morgan Stanley’s foray into ETFs follows on the heels of Capital Group, home of the American Funds, which launched several ETFs last year.
“The ETF market is increasingly crowded as firms that have a long history in the mutual fund space have entered the ETF market and are competing with established incumbents like
Vanguard, State Street, and Invesco,” said Todd Rosenbluth, head of research at VettaFi, a financial research and data company. “But there’s room for new entrants.”
The number of U.S. ETFs climbed to 2,843 at the end of December, from 2,570 the year before, according to the Investment Company Institute, a fund industry trade association.
Morgan Stanley’s debut of ESG ETFs also comes at a time when ESG strategies face political backlash, led by Republican politicians.
John Streur, Calvert’s chairman, said that while the ESG industry was caught in the crosshairs last year, net inflows to Calvert’s family of mutual funds were positive in 2022, and that now is an opportune time to focus on investing strategies focused on issues such as environmental sustainability.
The historic Inflation Reduction Act, which Congress passed last year, imposes a direct “charge” on methane emissions, while European Union officials recently announced plans to impose a tax on imports based on the greenhouse gases emitted in their production, he said.
“This is the time at which this is becoming more relevant to investors,” Streur told Barron’s. “We have evidence all around us that the issues that we focus on—financially material ESG performance of companies globally—matter from an investment perspective, now more than ever. This is the very time that investors should be taking advantage of the opportunity to manage these risks.”
Rosenbluth said it was notable that Morgan Stanley was now entering the ETF market. “ETFs are a go-to product for many advisors and individual investors to get access to the broader markets.,”he said. “Money continues to move away from traditional mutual funds in general and toward ETFs.”
Indeed, ETFs in the U.S. held $6.5 trillion in total net assets at year-end 2022, according to ICI. That figure is down 10% from a year ago when assets under management stood at $7.2 trillion. Assets in mutual funds. meanwhile, fell 18% to $22.1 trillion at the end of December, from $26.9 trillion the year before.
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