Parametric and Eaton Vance Expertise Inside an ETF

With five new actively managed ETFs launching today, the $1.4 trillion Morgan Stanley Investment Management powerhouse has further embraced the industry trends. Many advisors are choosing active ETFs that combine security selection expertise with tax efficiency and ease of use. Morgan Stanley has a strong heritage of offering active fixed income and risk-mitigated, tax-managed portfolios. 

“We continue to build out our ETF platform after listening to clients,” explained Anthony Rochte, global head of ETFs at Morgan Stanley Investment Management. “They want the decades of active management experience Eaton Vance and Parametric provides but with the choice of wrapper.” 

Morgan Stanley Kick-Started Its ETF Business This Year 

The firm launched six ETFs in February 2023 and recently managed over $400 million in assets. The initial suite tapped into the ESG expertise of Calvert Research and Management. The Calvert US Large-Cap Core Responsible Index ETF (CVLC) is the largest of the funds tracking a proprietary index. However, the Calvert US Select Equity ETF (CVSE) and the Calvert Ultra-Short Investment Grade ETF (CVSB) are actively managed. 

In the first nine months of 2023, actively managed ETFs gathered approximately 25% share of the U.S. industry’s net inflows. This cash haul occurred despite these ETFs representing around 5% of the assets. 

The five new ETFs include two equity and three fixed income products. Parametric and Eaton Vance will be managing these ETFs. They appear to complement preexisting strategies, but these ETFs are not clones.  

Parametric Offers Options-Based Expertise  

The Parametric Equity Income ETF (PAPI) will seek to deliver consistent and sustainable monthly income, while participating in most market appreciation. By combining a diversified, dividend-focused equity portfolio with selling call options on the SPDR S&P 500 (SPY), the strategy is expected to generate additional yield in a tax-efficient manner. 

The Parametric Hedged Equity ETF (PHEQ) seeks to provide investors with capital appreciation while incorporating downside protection. The option overlay component seeks to reduce portfolio volatility. PAPI and PHEQ are charging net expense ratios of 0.29%, making them cheaper than some options-based equity peers. 

Parametric is also the subadvisor for the Innovator Equity Managed Floor ETF (SFLR), a nearly one-year old $95 million downside protection options-based ETF. 

“We take a proactive tax loss harvesting approach with our active ETFs,” explained Alex Zweber, managing director, investment strategy at Parametric. “Parametric has a long history of managing options-based strategies for institutional investors that is being brought to advisors and end clients today.”   

Zweber will be joining the VettaFi Income Strategy Symposium on October 27 to discuss these strategies to advisors. Register today. 

Actively Managed Eaton Vance Bond ETFs Are Here 

In the first nine months of 2023, fixed income ETFs gathered more than a 40% share of the U.S. industry’s net inflows. They represent roughly a 20% share of the market. Advisors and investors are gaining more comfort in the liquidity and efficiency of using fixed income ETFs.  

The Eaton Vance High Yield ETF (EVHY) seeks to generate enhanced return through credit risk. The Eaton Vance Ultra-Short Income ETF (EVSB) offers more downside protection with a focus on less-interest-sensitive bonds. Meanwhile, the Eaton Vance Intermediate Municipal Income ETF (EVIM) provides exposure to federally tax-exempt bonds. All funds seek to outperform index-based strategies through security selection.  

Relative to CVSB, investors will likely find exposure to some differences. EVSB can invest up to 10% of its assets in below-investment-grade bonds. EVSB also has a lower expense ratio (0.17% versus 0.24% for CVSB). 

We think Morgan Stanley will continue to grow its product lineup and its asset base leveraging its active management expertise and scale. But education will be needed given the crowded market.  

For more news, information, and strategy, visit The ETF Yield Channel.