On Monday, Morgan Stanley began the week by converting two of its Pathway funds into ETFs. Each of these ETFs looks to offer capital appreciation through differing strategies.
A Large-Cap Strategy
The Morgan Stanley Pathway Large Cap Equity ETF (MSLC) offers an active take on a large-cap strategy. Following a waiver, the fund has a net expense ratio of 43 basis points.
Pathway funds like MSLC pursue their investment objectives by dividing and conquering with four sub-advisors. A large slice of MSLC’s pie is allocated to BlackRock, which curates a passive portfolio to replicate the Russell 1000 Index. This BlackRock sliver accounts for about 63% of the overall allocation
Meanwhile, ClearBridge Asset Management and Principal Asset Management take roughly 8% and 12% of the portfolio, respectively, to pursue differing growth strategies. ClearBridge uses a GARP framework, while Principal focuses on large-cap growth.
Lastly, Greek Lakes Advisors uses about 17% of MSLC’s portfolio to add a large-cap value sleeve. This overall blend of growth, value, and indexing strategies aims to generate competitive capital appreciation.
Growth From SMID Caps
For investors looking to build up SMID-cap exposure, the Morgan Stanley Pathway Small-Mid Cap Equity ETF (MSSM) may be able to help. This fund’s net expense ratio is currently sitting at 0.57%, following a fee waiver.
Much like MSLC, MSSM also divides its portfolio management among four sub-advisors. Roughly 40% of the fund’s portfolio is overseen by BlackRock, which builds a passive selection that tracks the Russell 2500 Index.
Meanwhile, around 20% of MSSM’s assets go towards a discount value strategy piloted by AllianceBernstein. Westfield Capital Management is responsible for a small-cap growth strategy for about 23% of the overall portfolio. Finally, Neuberger Berman uses the remaining 17% of assets for a small-cap intrinsic value strategy.
“Morgan Stanley continues to further expand its lineup of ETFs,” added Todd Rosenbluth, Head of Research at VettaFi. “It’s great to see them accelerate given the record demand industrywide. "
By choosing to invest in MSLC or MSSM, investors can tap into the extensive track records that both funds provide. While MSLC and MSSM are only now available as ETFs, these funds have been applying this strategy since their inception in 1991.
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