Morgan Stanley has structured a capital-protected note around a PowerShares Capital Management exchange traded fund that references a novel water index. The PowerShares Water Resources Portfolio, with over USD2 billion under management, reflects the returns on an index made up of water-related companies.
Ed McRedmond, senior v.p. at PowerShares in Boulder, Colo., said Morgan Stanley approached the fund firm about the ETF following the launch of a structured note linked to PowerShares' WilderHill Clean Energy ETF at the end of last year. McRedmond said PowerShares is open to firms writing structured notes referencing its funds because firms hedge typically by buying ETF shares. He noted the size of the structured notes is relatively modest compared with the size of the ETF, so potential volatility caused by dealers hedging the note is not a concern.
The one-year Morgan Stanley note leverages the returns of the fund three times, up to a maximum return at maturity of 119%. Set to be issued Friday as DW went to press, it could not be determined whether it was structured as a reverse enquiry and Morgan Stanley officials could not be reached by press time.
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