The asset management arm of Morgan Stanley (NYSE:MS) recently sought approval from the U.S. Securities and Exchange Commission to roll out passive and active U.S.-listed ETFs. Morgan Stanley actually followed the Wall Street banks which are exposing themselves to the growing world of ETFs. Prior to this, the asset management wings of Goldman Sachs Group (NYSE:GS) and J.P. Morgan (NYSE:JPM) made such moves.
After all, the ETF industry has been taking giant strides in recent years with many issuers launching products with varied themes. Moreover, these banks intend to beef up their investment and wealth management business, which is way steadier in revenue generation than other income areas like trading. Trading, despite being a winning business previously, has lately been bothered by stringent regulatory rules, as per Reuters.
As of now, investment management accounts for less than 10% of Morgan Stanley's overall revenue. But the firm is gunning for the expansion of this area by launching new products. The rise in interest to foray into the ETF world is self-explanatory as the U.S. ETF industry has raked in as much as $2.27 trillion of assets so far, with 1913 products.
Can It Succeed?
We expect success ahead for Morgan Stanley amid fierce competition. Among the big investment banking firms, UBS already has immense presence in the ETF industry. Its highest-grossing ETF is E-TRACS Alerian MLP Infrastructure Index ETF (NYSEARCA:MLPI) with an asset base of $2.31 billion. Definitely, UBS enjoys some first-mover advantage in this bunch of comparable investing banking organizations.
Goldman already has seven ETFs with Goldman Sachs ActiveBeta Emerging Markets Equity ETF (NYSEARCA:GEM) being the top-grossing product (about $721.7 million). In a nutshell, a little late entry into the market may prove slightly disadvantageous for Morgan Stanley. The firm has to focus hard on innovative themes so that it can carve out a niche for itself in the field which is presently headed by BlackRock (NYSE:BLK) and State Street (NYSE:STT).
But then, there is an advantage for Morgan Stanley also. Already, Morgan Staley had exposure in indexing operations. In the mid-1990s, Morgan Stanley supported some of the initial ETFs by its indexing affiliate MSCI, going by Reuters. So, this know-how will definitely give Morgan Stanley an added advantage in the ETF field. However, MSCI is now an independent company.