SecProbe.io

CORRESP
1
filename1.htm

    1095 Avenue of the Americas

    New York, NY 10036-6797

    +1 212 698 3500 Main

    +1 212 698 3599 Fax

    www.dechert.com

    Allison Fumai

    allison.fumai@dechert.com

    +1 212 698 3526 Direct

    +1 212 698 3599 Fax

September 29, 2023

Securities and Exchange Commission

100 F Street, NE

Washington, D.C. 20549

Attention: Eileen Smiley, Division of Investment Management

Re: Morgan Stanley ETF Trust (the “Trust”)

  (File Nos. 333-266913; 811-23820)

Dear Ms. Smiley:

Thank you for your comments
regarding the Trust’s registration statement on Form N-1A relating to the addition of a new series of the Trust: Parametric
Hedged Equity ETF (the “Fund”), filed with the Securities and Exchange Commission (the “Commission” or “SEC”)
on July 24, 2023.

The Trust has considered your
comments and has authorized us to make the responses, changes and acknowledgements discussed below relating to the Fund’s registration
statement on its behalf. Below, we describe the changes made to the registration statement in response to the Commission staff’s
(the “Staff”) comments and provide any responses to or any supplemental explanations of such comments, as requested. These
changes are expected to be reflected in Post-Effective Amendment No. 7 (the “Amendment”) to the Trust’s registration
statement on Form N-1A, which will be filed via EDGAR on or about October 6, 2023. Comments you provided on September 28,
2023 will be addressed in a separate letter. Capitalized terms not otherwise defined herein have the meanings ascribed to them in the
registration statement.

 Comment
                            1. Please complete all empty fields, including the fees and
expenses table. The Staff may have additional comments on such portions of the registration statement.

Response
1.           The Trust confirms that all empty fields will be completed in the Amendment.

 Comment
                            2. Please explain supplementally the rationale for the Fund
pursuing its investment objective by investing in the Equity Portfolio rather than through one long option like other similar funds.
Please also explain supplementally how the cap and buffer operate in relation to the Equity Portfolio.

Response
2.          As described in more detail in response to Comment 3 below, the disclosure will be revised in
the Amendment to more clearly reflect that the Fund does not pursue a defined outcome strategy but rather seeks to limit losses experienced
by investors through the incorporation of an option overlay hedging strategy. Accordingly, Morgan Stanley Investment Management Inc.
(the “Adviser”) and/or Parametric Portfolio Associates LLC (the “Sub-Adviser”) believe that the use of a long
deep in the money call option is not the preferred method for the Fund to gain long equity exposure because the Fund’s strategy
does not contemplate the same certainty of payoff as defined outcome funds.

The Adviser and/or Sub-Adviser believe
that it is more advantageous to the Fund to obtain long equity exposure by investing in a portfolio of equity securities than through
one long option for several reasons, including that investing in a portfolio of equity securities: (i) is more efficient and cost-effective;
(ii) is more readily understandable for investors; (iii) may result in the Fund receiving dividends, which would contribute
to the Fund’s total return; (iv) may facilitate the Fund’s ability to experience enhanced returns as a result of tax
loss harvesting; and (v) will allow the Adviser and/or Sub-Adviser to limit the overlap between the Fund’s investments in the
Equity Portfolio and the underlying constituents of the Options Portfolio to less than 70% on an ongoing basis in an effort to avoid being
subject to disadvantageous “straddle rules” under federal income tax law, which cannot be avoided using a deep in the money
call option.

The Trust further notes that the Equity
Portfolio is not “actively managed” in the traditional sense as, subject to the 70% limitation on the overlap between the
Fund’s equity investments and the underlying constituents of the Options Portfolio, the Equity Portfolio will be managed to seek
to minimize tracking error relative to the Equity Portfolio Index, which seeks to provide the returns of the 500 largest U.S. companies.

As described in more detail in response
to Comment 3 below and as shown in the revised disclosure to be included in the section of the Prospectus entitled “Principal Investment
Strategies” as reflected in Appendix A to this letter, the disclosure will be revised in the Amendment to remove references
to the buffer-cap structure.

 Comment
                            3. The Equity Portfolio is based on an index that is not the
S&P 500® Index but the buffer is based on the SPDR
S&P 500® ETF Trust. Please consider modifying the
Fund’s investment strategy to reflect a hedged strategy rather than the cap and buffer structure. The Staff believes that, in this
context, the buffer would not operate as described given the active management of the Equity Portfolio. For example, if the Fund’s
portfolio is non-diversified, the Equity Portfolio’s returns could be more dependent on fewer issuers than is the case of the S&P
500® Index and the Equity Portfolio’s returns could
differ from the returns of the S&P 500® Index (whereas
defined outcome funds typically hold a long option on the S&P 500®
Index or SPDR S&P 500® ETF Trust such
that the Fund’s long equity exposure moves with the options strategy).

Response
3.           The section of the Prospectus entitled “Principal Investment Strategies” will be
revised in the Amendment to reflect that the Fund seeks to limit losses experienced by investors through the incorporation of an option
overlay hedging strategy rather than through the incorporation of a downside buffer. After further consideration, the Adviser and/or
Sub-Adviser determined that the Fund’s investment strategy would more appropriately be described as an option overlay hedging strategy
than as involving a buffer-cap structure. The Trust further notes that the Fund will be classified as a “diversified company”
for purposes of the Investment Company Act of 1940, as amended (the “1940 Act”), and the disclosure will be revised accordingly
in the Amendment. Please refer to the revised disclosure to be included in the sections of the Prospectus entitled “Fund Summary
 – Investment Objective” and “Fund Summary – Principal Investment Strategies,” which are included in Appendix
A to this letter.

      2

Comment
                            4. Please rearrange the principal investment strategy disclosure
so that the discussion regarding the hedging strategy follows the discussion of the Equity Portfolio. Please add additional detail regarding
the composition of the Equity Portfolio so that investors could more easily understand the intended operation of the hedging strategy.

Response
4.           The disclosure will be revised accordingly in the Amendment. Please refer to the revised disclosure
to be included in the section of the Prospectus entitled “Fund Summary – Principal Investment Strategies,” which is
included in Appendix A to this letter.

Comment
                            5. Please revise the disclosure to include a definition of equity
securities and disclose whether the Fund intends to use options or other derivatives in connection with the Fund’s Equity Portfolio
or if options will only be used for purposes of the Fund’s hedging strategy.

Response
5.           The disclosure will be revised accordingly in the Amendment. Please refer to the revised disclosure
to be included in the section of the Prospectus entitled “Fund Summary – Principal Investment Strategies,” which is
included in Appendix A to this letter.

Comment
                            6. Please relocate the discussion regarding the Periods to follow
the discussion of the Equity Portfolio along with the other disclosure relating to the hedging strategy.

Response
6.          In connection with the revisions to the section of the Prospectus entitled “Fund Summary
 – Principal Investment Strategies” described in response to Comments 2 and 3 above and as shown in Appendix A to this
letter, “Periods” are no longer relevant to the Fund’s strategy. Accordingly, all such references to “Periods”
will be removed in the Amendment.

Comment
                            7. Please include the name of the Equity Portfolio Index. Please
supplementally provide the name of the index provider and confirm whether the index methodology is publicly available.

Response
7.           The disclosure will be revised in the Amendment to include the name of the Equity Portfolio Index,
the Solactive GBS US 500. The index provider is Solactive AG and the Trust confirms that the methodology of the Equity Portfolio Index
is publicly available.

Comment
                            8. The section of the Prospectus entitled “Fund Summary
 – Principal Investment Strategies” provides that “[t]he constituents of the Equity Portfolio Index are weighted according
to the securities’ free float market capitalization.” Please clarify supplementally how the weightings of the Equity Portfolio
Index constituents are determined.

Response
8.           The guidelines of the Equity Portfolio Index provide that the “free float market capitalization”
means “with regard to each of the securities in the index universe on a selection day the share class-specific free float market
capitalization. It is calculated as the multiplication of the shares outstanding in free float (as sourced from data vendors) with the
closing price of the share class as of the respective selection day.”

      3

Comment
                            9. Please confirm that foreign securities are not included for
purposes of the Fund’s 80% investment policy. The Staff notes that the Statement of Additional Information includes disclosure
regarding ADRs. If investment in foreign securities is a principal strategy of the Fund, please add applicable principal investment strategy
and principal risk disclosure to that effect.

Response
9.          The Trust confirms that foreign securities are not included for purposes of the Fund’s
80% investment policy. The Trust further confirms that investment in foreign securities is not a principal investment strategy of the
Fund. Accordingly, no changes to the disclosure will be made in response to this comment.

Comment
10. Please confirm whether derivatives are included for purposes
of the Fund’s 80% policy. If so, (i) please revise the disclosure to clarify that this is the case, (ii) please confirm
supplementally that derivatives are valued using market value for purposes of the Fund’s 80% policy, and (iii) please supplementally
provide an outline of the Fund’s plans to comply with Rule 18f-4 under the 1940 Act, including an overview of the key elements
of the Fund’s derivatives risk management program.

Response
10.         The Trust confirms that, as disclosed in the Statement of Additional Information, derivative
instruments used by the Fund will be counted toward the Fund’s 80% policy discussed in the prospectus to the extent they have economic
characteristics similar to the securities included within that policy. Accordingly, no changes to the disclosure will be made in response
to this comment. The Trust confirms that it expects that derivatives will generally be valued at market value for purposes of the Fund’s
80% investment policy. However, the Trust notes that, with respect to how the Fund values derivatives for purposes of its 80% investment
policy, the Fund intends to comply with applicable law, regulation and/or Staff guidance that may be in effect in the future, including
the recent amendments to Rule 35d-1 under the 1940 Act that were adopted by the Commission.

With respect to the third part of this
comment, the Board of Trustees has adopted policies and procedures pursuant to Rule 18f-4 under the 1940 Act and has adopted and
implemented a written derivatives risk management program (the “Program”). The Program includes each of the elements required
under Rule 18f-4. The Board of Trustees, including a majority of the trustees that are not considered to be interested persons of
the Fund, approved five individuals to collectively serve as the derivatives risk manager to administer the Program.

Comment
11. Please revise the disclosure to include a discussion of the
likely impact to the Fund and its shareholders if the Fund breaches the straddle rules.

Response
11.         Please refer to the response to Comment 26 below.

      4

Comment
12. The section of the Prospectus entitled “Fund Summary
 – Principal Investment Strategies” states that “[t]hrough this optimization of holdings representing constituents of
the Equity Portfolio Index, the Equity Portfolio is not expected to hold each of the constituents of the Equity Portfolio Index and the
Fund’s investments that reflect constituents of the Equity Portfolio may be overweight or underweight as compared to the Equity
Portfolio Index’s weighting.” Please consider whether this disclosure should be relocated to the beginning of the principal
investment strategy where the 80% policy is discussed. In addition, please include additional disclosure regarding how the investment
team determines whether the Fund should be overweight or underweight relative to weightings in the Equity Portfolio Index (e.g.,
based on a model).

Response
12.        The disclosure will be revised accordingly in the Amendment. Please refer to the revised disclosure
to be included in the section of the Prospectus entitled “Fund Summary – Principal Investment Strategies,” which is
included in Appendix A to this letter.

Comment
13. Please relocate all discussions regarding the options strategy
to follow the disclosure relating to the Fund’s Equity Portfolio. Please revise the disclosure to include a description of the
Options Portfolio and explain how it relates to the Equity Portfolio. Please consider whether the buffer and cap references are appropriate
for this Fund given the apparent disconnect between the Equity Portfolio and options strategy because the Equity Portfolio is actively
managed and the Fund is non-diversified.

Response
13.        With respect to the first portion of the comment, the section of the Prospectus entitled “Fund
Summary – Principal Investment Strategies” will be revised in the Amendment such that the Equity Portfolio is described first
and is followed by a description of the options overlay hedging strategy. With respect to the remainder of this comment, please refer
to the response to Comments 2 and 3 above and the revised disclosure to be included in the section of the Prospectus entitled “Fund
Summary – Principal Investment Strategies,” which is included in Appendix A to this letter.

Comment
14. Please revise the disclosure to clarify that the Fund intends
to primarily invest in listed options rather than FLEX options. If the use of other types of derivatives will be a principal investment
strategy of the Fund, please revise the disclosure accordingly. If the use of FLEX options will not be a principal investment strategy
of the Fund, please consider moving the disclosure relating to FLEX options to the sections of the Prospectus entitled “Details
of the Fund” or “Additional Information About Fund Investment Strategies and Related Risks” and/or in the Statement
of Additional Information.

Response
14.         The Trust confirms that the Fund is not expected to invest in FLEX options. Accordingly, all
references to FLEX options will be removed in the Amendment. The Trust further confirms that no other types of derivatives will be a
principal investment strategy of the Fund.

      5

Comment
15. The section of the Prospectus entitled “Fund Summary
 – Principal Investment Strategies” states that “[a]lthough guaranteed for settlement by the OCC,