Morgan Stanley is dipping a toe back into the $6.3 trillion exchange-traded fund industry.
The Innovator Equity Managed Floor ETF (ticker SFLR), which begins trading Wednesday, is sub-advised by systematic asset manager Parametric Portfolio Associates, which was acquired by Morgan Stanley in March 2021 when the James Gorman-led bank purchased Eaton Vance Corp.
The new fund represents the bank’s ETF management comeback. It provides Morgan Stanley indirect exposure to the ETF industry as Wall Street waits for the bank’s own funds to launch. While Morgan Stanley was home to some of the world’s first ETFs in the 1990s and helped spawn the dominant “iShares” business that is now owned by BlackRock Inc., the firm doesn’t currently oversee any of its own funds.
SFLR will hold mainly S&P 500 stocks with a mixture of an options overlay, in which the ETF will purchase a laddered series of one-year, out-of-the-money put contracts paired with a short-term call-selling strategy -- a staple approach of Parametric. It is designed to limit SFLR’s maximum losses to roughly 10% over a 12-month period, according to a press release. The fund carries an expense ratio of 89 basis points.
“We believe that managing risk can elevate investors’ expected outcomes over the long term,” Parametric Chief Investment Officer Thomas Lee said in the release.
Unlike Innovator’s so-called Buffer funds that have propelled the investment advisor’s assets under management to more than $10 billion, SFLR won’t have a ceiling on upside gains, according to the release. Also, the new ETF’s equity holdings will pay out dividends, unlike the Buffer funds, which hold almost entirely options.