Morgan Stanley has just rolled out some new money management services in anticipation of the many changes in financial markets and which are now taking place. In a report titled “The Long and Winding Road of Wall Street,” Morgan Stanley Wealth Management managing director Keith O’Neil says these new offerings reflect the changes ushered in by the 2016 election and have nothing to do with President Donald Trump and everything to do with increasing customer interest in alternative investment strategies and retirement accounts.
Its “big bet” is Greenwich, Conn.-based asset manager Eaton Vance Corp. The bank has $300 billion in assets under management on its global platform, a compound annual growth rate of 11 percent. The firm, whose stock has recently rallied amid robust third-quarter earnings, has investors returning cash in response to record levels of debt, O’Neil says, which is driving interest in Eaton Vance’s hybrid products as a global interest rate environment remains low and interest rates, usually, rise over time.
Or, to put it a different way, the rising rates environment may continue to drive fixed-income investors back into hybrid strategies, which are often featured in third-party funds, he says.
Indeed, since the Great Recession, alternative funds have become more popular, according to FTT Global, an asset allocation advisory firm. And, in the most recent quarter, they produced an average 16.4 percent annualized return, compared with 12.9 percent for all mutual funds, the firm said.
O’Neil believes Eaton Vance offers options for investors seeking increasingly low-yielding investments. For instance, it offers clients the ability to invest in Eaton Vance Greenhouse Special Series Plus Fund. Investors gain access to the Eaton Vance hedge fund “family” and will be shielded against “troublesome issues like hedge fund manager departures or shaky investor positions,” he says.
The fund manager is positioned “to opportunistically take advantage of market dislocation or reposition itself,” he says.
Another fund feature has to do with how returns are accounted for. O’Neil describes a fund manager with proprietary assets as an “at-the-money” fund.
It assigns a slightly higher distribution yield to the ones it own, which have a slightly lower allocation to popular assets like U.S. Treasuries. Those investors appear to be disproportionately longer-term in their outlook, O’Neil says. Eaton Vance’s funds “will lock in higher returns that way,” he says.
Why does Morgan Stanley want in on some alternative strategies? It’s probably a combination of things, such as the trend toward more alternatives, increased financialization, rising interest rates and cost cutting, he says.
Does this mean you should consider looking at any alternative asset strategies as well?
While the traditional asset class funds may not be as attractive as they once were, O’Neil notes that interest in alternative products tends to increase over time. He also says if you’re on the hunt for new strategies, there’s value to be found in these.