Morgan Stanley is marketing a structured note that references a stock-picking model employed by its U.S. investment strategy team. Getting in-house research teams to contribute to investment banking profits has been a bugaboo in the post-Spitzer era and the structure is one way of putting those increasingly sidelined groups to work.
The one-year note, set to price Friday, is not capital protected. It offers investors exposure to a static stock basket selected by its U.S. investment strategy team. The group has run an intrinsic value model to identify the 97 most undervalued stocks in the Standard & Poor's 500.
The basket was fixed last Wednesday, and includes names such as Bank of America, HCA and Nike. Along with the total return of the basket--whether positive or negative--the investor also receives or has deducted 50% of the difference between the basket and the S&P 500 Total Return Index.
The fees and size of the issue could not be determined by press time. Kevin Woodruff, managing director in equity structured products, declined all comment ahead of the pricing. Chief U.S. strategist Henry McVey could not be reached for comment by press time.
In the last month, JPMorgan has cut some research publications and Nomura has suspended some fixed-income research. Other firms have started focusing on trading strategy reports and seating analysts on hedge fund sales desks, for example, rather than publishing sector-specific research. "Research groups are looking for ways to become relevant," said one equity structuring head. "This could be something that we will see more of," he added, tipping Merrill Lynch and Citigroup, among other firms with strong U.S. research and structured investment business, as likely to follow suit. Officials at Merrill and Citi did not respond to messages by press time.
One private bank investment manager warned that while the note is different and interesting, the structure could be difficult to explain to some investors.
