Source and Morgan Stanley team up on smart beta “month-end effect” ETF

Jul 7th, 2014 | By | Category: Equities

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London-based exchange-traded fund provider Source and investment bank Morgan Stanley have teamed to launch the Source Morgan Stanley Europe MEMO Plus UCITS ETF (EMSE), an ETF which aims to outperform the broad European equity market by exploiting the so-called “month-end effect”.

Source and Morgan Stanley team up on smart beta “month-end effect” ETF

The Morgan Stanley Europe MEMO Plus Strategy aims to capitalise on one of the most persistent patterns in equity markets – the so-called “month-end effect”.

Listed on the Deutsche Börse, the fund is linked to the Morgan Stanley Europe MEMO Plus Strategy, a proprietary strategy index developed by Morgan Stanley which aims to capitalise on one of the most persistent patterns in equity markets.

In short, equities tend to perform better around the end of the month, when many investors receive and invest cash. The Morgan Stanley index, which falls squarely into the “smart beta” category, is designed to capture this performance, and thereby enhance returns.

The strategy combines continuous exposure to European equities with additional exposure, of 2x leverage, around month-end. In simulations over the past 13 years, the strategy has outperformed the MSCI Europe Index by an average 6.0% per annum.

The strategy takes European equity exposure via the MSCI Europe Index. However, around month end, it takes additional exposure, to a basket of six regional and country indices including the FTSE 100, SMI, AEX, CAC 40, DAX and Euro Stoxx 50. Each month, the strategy uses a proprietary algorithm to determine the optimal investment period for each index.

Aleksandar Ivanovic, Managing Director at Morgan Stanley, said: “The month-end effect is a simple concept backed by academic research, but to capture it effectively you need to apply a dynamic approach. Because the month-end effect is a behavioural pattern, it can vary slightly across markets and over time. By using a selection of regional and country indices, and by adjusting its investment periods, MEMO Plus can capture these variations and generate improved returns over the long term.”

Ted Hood, CEO of Source, added: “Source continues to deliver differentiated products to investors. This fund provides exposure to a well-known market anomaly, via a smart strategy delivered in a convenient ETF format.”

The fund has a management fee of 0.30% per annum.

The ETF is Morgan Stanley’s second foray into the smart beta ETF space this year. Last month the firm rolled out the MS Scientific Beta Global Equity Factors UCITS ETF (GEF), linked to the Scientific Beta Developed Multi-Beta Multi-Strategy Equal Weight Index, on the London Stock Exchange.

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