Invesco PowerShares is launching an actively managed exchange-traded fund that provides access to strategies developed by Morgan Stanley designed to dampen volatility, which is expected to climb once the Federal Reserve completes its unwinding of quantitative easing this fall.
The PowerShares Mutli-Strategy Alternative Portfolio (LALT), which is scheduled for listing on Nasdaq on May 29, is an actively-managed long-short strategy that seeks to provide exposure to a broad mix of alternative asset classes.
“This is the first ETF that provides exposure to a set of time-tested, institutional alternative strategies,” Lorraine Wang, global head of ETF products and research at Invesco PowerShares, told Markets Media. “These strategies that the fund will be referencing have been used for years as a benchmark for products offered to institutional investors. With these combined strategies the fund can potentially offer low correlation to traditional asset classes, bond-like volatility and enhance risk-adjusted returns.”
Stock and bond markets have greater potential to experience heightened volatility against a backdrop of subpar growth. In such an environment, a multi-strategy alternative ETF may be able to help investors by reducing the volatility of returns.
LALT will consist of instruments selected with reference to the components of the Morgan Stanley Multi-Strategy Alternative Index, which will serve as the benchmark for the ETF.
“One of the primary goals for investors that use alternative strategies is to minimize exposure to equity and bond markets, and to achieve better risk-adjusted returns compared to portfolios consisting only of traditional asset classes,” said Dan Draper, Invesco PowerShares managing director of global ETFs, in a release. “Invesco PowerShares is committed to providing innovative tools to help investors achieve their goals of wealth accumulation and capital preservation.”
The Morgan Stanley index has five component strategies, some of which have been used for years as benchmarks for products offered to institutional clients. “It is an active ETF so it's not 'tracking' an index,” Wang said. “The fund is referencing the benchmark, which is the Morgan Stanley index, and seeks to outperform that benchmark.”
““Morgan Stanley has an established platform of proprietary liquid alternative indices across asset classes,” said Nikki Tippins, head of Americas equity derivatives distribution at Morgan Stanley, in a statement. “The Morgan Stanley Multi-Strategy Alternative Index is designed to combine such strategies that seek to offer attractive risk-adjusted returns with low correlation to traditional asset classes. We’re delighted to provide this benchmark for such an original ETF.”
LALT is the fourth of PowerShares’ active ETFs, said Wang. “We will likely continue to grow the active ETF space which we feel is actually best suited to alternative strategies,” she said. “The ability to use long and short strategies and the use of derivatives introduces more complexity and sophistication. So the active ETF is an ideal structure.”