Optimized Portfolio As Listed Securities (OPALS)


What is a portfolio optimized as listed securities (OPALS)?

The portfolio optimized as listed securities is a single country stock market index that contains fewer stocks than the benchmark. Morgan Stanley created an optimized portfolio as listed securities in 1994. It is considered to be a predecessor to the popularity of exchange traded funds.

Understanding an optimized portfolio as listed securities (OPALS)

Portfolios optimized as listed securities are designed to track an index from a single country, but they should outperform the index by containing fewer securities; in other words, by being optimized. The portfolios can be sold before expiration or settled by physical delivery of the underlying shares. The product is designed for cross-border equity investors who cannot use futures effectively, or who cannot use futures for regulatory reasons, and who cannot justify managing their own equity transaction by country.

Portfolio optimized as listed securities and portfolio optimization

Portfolio optimization is the process of selecting the best portfolio (asset allocation) from a set of all possible portfolios envisaged to achieve a goal. This process generally attempts to maximize factors such as expected return, while minimizing factors such as spending, volatility and risk. The optimal portfolio varies and is influenced by the return objectives and risk tolerance of each investor.

Portfolio optimization often takes place in two stages: optimizing the weightings of asset classes and optimizing the weights of securities within the same asset class. Optimizing asset class weighting would include decisions such as choosing the percentage of a portfolio invested in stocks versus bonds or real estate, while an example of stock selection would involve selecting exactly the stocks or bonds held. Holding a part of the portfolio in each category offers a certain diversification and holding various specific assets within each category allows additional diversification.

Portfolio optimized as listed securities

Portfolios optimized as securities listed on the Luxembourg Stock Exchange. They are available for many Morgan Stanley Capital International (MSCI) indices. Portfolios are generally purchased only by large institutional investors. They have a minimum investment of $ 100 million and are not registered with the U.S. Securities and Exchange Commission, so they are generally not available to the majority of U.S. investors.

Portfolios optimized as listed securities are often considered to be one of the many predecessors to the introduction of exchange-traded funds in the United States. Optimized portfolios were introduced on the Luxembourg Stock Exchange because the more permissive rules of the exchange allowed Morgan Stanley to offer the shares to individuals. In 1996 Morgan Stanley introduced the global benchmark stocks (WEBS). These were SEC registered shares, similar to portfolios optimized as listed securities and available to US retail investors.

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