Morgan Stanley to debut first Pathway-branded ETFs

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

According to a filing with the Securities and Exchange Commission, it filed to reshape the $2.6 billion Morgan Stanley Pathway Large Cap Equity Fund and the $470 million Morgan Stanley Pathway Small-Mid Cap Equity Fund in ETFs.

The conversions, approved unanimously by the funds’ board of directors, will not require shareholder approval, the filings said.

The company cited several 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 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 focus on smaller funds of a wider range of strategies, according to Morningstar analyst Dan Sotiroff.

“For these strategies, conversions are a way to make 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, which include the $1.9 billion Core Fixed Income Fund, the $1.3 billion International Equity Fund and the $500 million Emerging Markets Equity Fund.

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

The firm entered the ETF space in February 2023, launching six such funds under the Calvert brand. It subsequently filed for its first conversion from mutual funds to ETFs in early October 2023.

The company currently owns 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) keeping the branding in this case really speaks to them getting more into the ETF game,” Sotiroff said.

The Large-Cap Stock Fund had net inflows of $343 million, while the Small- and Mid-Cap Stock Fund bled $73 million for the year ended July 31, according to Morningstar Direct data.

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

Morgan Stanley is also one of more than a dozen fund managers that have filed for a multi-share class structure ETF, after asking the SEC earlier this year for an exemption to offer a share class structure double.

If approved, the process would allow the company 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 ignite.com.