Tag Archives: actively-managed ETFs

Eaton Vance ETMFs Get Boost By RIA Titan Envestnet

MarketsMuse blog update is courtesy of BrokerDealer.com and initial reporting by InvestmentNews.com and profiles the deal between RIA titan Envestnet and mutual fund king Eaton Vance, which is now approved to promote its novel, actively-managed ETF product “NextShares.” NextShares are exchange-traded funds that are both actively managed and unlike any other ETF product, does not disclose the underlying components of the respective ETFs. These products now go by the acronym “ETMFs.”

Since its approval, Eaton Vance has had to work hard to convince competitive money managers to license its patent and persuade broker-dealers that it is in their interest to make NextShares available to advisers even though the funds don’t offer the same underlying fees to encourage distributors. Eaton Vance’s NextShares-promoting subsidiary, Navigate Fund Solutions, has had to make that case before it even has a product on the market or a distribution partner.

BrokerDealer.com provides a global directory of regulated securities industry professionals operating in 30 major countries across the free world.

The deal is a big win for Eaton Vance, an actively managed mutual fund company that’s hoping to replace those products with a potentially more tax-efficient vehicle that could lower costs and improve performance for investors. Envestnet is a major gatekeeper in the fast-growing market of independent financial advisers, providing services for over $700 billion in client assets.

In a statement, an Envestnet executive, Jim Patrick, described NextShares as a “groundbreaking fund structure” and said the company sees offering the funds as part of its mission to help advisers deliver “wealth management services in the most cost- and tax-efficient way possible.”


NextShares was the first and remains the only structure approved by the Securities and Exchange Commission that allows an actively managed open-end fund to trade on exchanges without regularly disclosing its holdings. Portfolio managers resist showing the securities they buy and sell, in part to prevent being taken advantage of by competitors.

– See more at: BrokerDealer.com

Actively-Managed ETF Smackdown: Eaton Vance vs. Precidian

As reported previously by MarketsMuse, actively-managed ETFs, aka AMETFs (or as Eaton Vance has dubbed their product: “NextShares ETMFs”) are the next holy grail for Issuers of exchange-traded funds simply because these new-fangled products offer a refreshing new batch of flavors to a product category that has nearly 2000 issues whose structures are pretty much the same and all are intended to compete with traditional mutual funds. Eaton Vance is a pioneer in actively-managed exchange-traded funds, and Precidian Investments is biting on their heels so far with their proposal for “ActiveShares”. The difference between the ‘actively-managed’ types vs. the plain vanilla ETFs is total lack of transparency; investors in actively-managed ETFs do not know what the underlying components are, so the value proposition is presumably based on the ETF managers’ capabilities.

For some, actively-managed ETFs are the perfect product for hedge fund operators to promote, given that hedge fund investor appeal for investing in hedge funds is the secret sauce each of them purportedly uses to make profits for investors, or per industry jargon, “capture Alpha.”

For ETF market-maker veterans, the notion of not knowing what the underlying components are is counter-intuitive. Unlike a traditional, single stock specialist who makes a two-sided market in IBM, and is willing to either buy or sell based on their ability to gauge which direction the stock is headed next, ETF market-makers don’t take that kind of risk, they make money by providing a two-sided aka bid-offer market in any particular ETF  based solely on their ability to arbitrage the underlying components vs. the cash price of the ETF. In simple speak, an ETF market-maker is only interested in offering 50,000 or more shares of the ETF if they can simultaneously purchase the underlying constituents of that ETF at an aggregated price that is less than the current offering price of the ‘parent’ ETF.  They will only make a bid for a block size trade if they think they can simultaneously sell-short the underlying constituents such that the aggregate ‘sale price’ is greater than the price they pay for the cash ETF product.

Irrespective of whether actively-managed ETFs can prove to be liquid trading vehicles, which is arguably a criteria for most investors, NextShares non-transparent product has been approved by the SEC, while its competitor, Precidian Investments continues to face hurdles with the regulators. Perhaps this is a who-you-know issue. As noted by WSJ’s coverage by Daisy Maxey:

Regulators denied a second request from Precidian Investments for approval to launch actively managed exchange-traded funds that wouldn’t have to disclose their holdings daily, as ETFs now do. The latest SEC denial of Precidian’s ETF plan “ActiveShares”became public Monday when competitor Eaton Vance posted it on its website. In October, the SEC denied Precidian’s filing for a nontransparent active ETF that would trade on an exchange. Precidian refiled with the regulator in December after making changes, seeking exemptive relief to launch its funds, which it called ActiveShares.

But in a denial letter dated April 17 that just become widely available, the SEC notes that it had previously denied a “substantially similar” proposal from Precidian.

Daniel McCabe, chief executive at Precidian, said the company is in a “fruitful” and ongoing dialogue with regulators, and plans to refile to launch the funds.

The latest SEC denial of Precidian’s ETF plan became public Monday when competitor Eaton Vance Corp. posted it on its website. Eaton Vance, which has received SEC approval to launch a related product called exchange-traded managed funds, said it obtained the SEC communication to Precidian through a Freedom of Information Act request. Precidian’s product would have been a competitor to the ETMFs planned by Eaton Vance.




Why Mutual Fund Guru Gundlach Is Now Embracing ETFs: A $TOTL $uccess

MarketsMuse.com ETF update profiles the embracement of exchange-traded funds on the part of one of the investment industry’s most intriguing mutual fund innovators, courtesy of excerpt from 18 April 19 story from InvestmentNews.com

Jeffrey Gundlach is no stranger to striking out on his own or launching new products. After an acrimonious split with the TCW Group Inc. in 2009, he did just that, building what has become a $63 billion business with 12 mutual funds.

But when it came to starting an exchange-traded fund, his Los Angeles-based firm, DoubleLine Capital, needed some convincing, according to David LaValle, head of ETF capital markets in the U.S. at State Street Corp.’s money management unit.

“Why would they want to be in this space when [they] have a successful franchise,” said Mr. LaValle, speaking at an industry conference in New York on April 1. Ultimately, though, ETFs access “a totally different investor base” than mutual funds, Mr. LaValle said.

Mr. Gundlach has said he remains ambivalent about just how popular ETFs will become. But, on the sidelines of a massive ETF industry conference he keynoted in Hollywood, Fla., in January, he said he wasn’t going to take any chances. “I want to be involved, certainly, and not left behind,” he told a reporter.

In little more than a month since the launch of his first actively managed ETF, in partnership with State Street, the SPDR DoubleLine Total Return Tactical ETF (TOTL) has become one of the largest ETFs of its kind. At $240 million, TOTL’s assets are still a pittance compared with the $117 billion in the world’s largest bond mutual fund, Pimco Total Return (PTTAX).

For the entire story from InvestmentNews.com, please click here

What’s Next? Celeb Investment-Manager Licenses NextShares in Bid to Join Actively-Managed ETF Craze: Gabelli

MarketsMuse update courtesy of below extract from Institutional Investor’s profile of Mario Gabelli and his investment vehicle GAMCO’s foray into the actively-managed ETF fracas.

InstitutionalInvestor (1)Now that exchange-traded funds are a better fit for active managers, Mario Gabelli is signing on. The seasoned investor — who eschews index funds — says he can’t afford to miss out on ETFs any more than he can ignore social media.

Gabelli, 72, remains a staunch advocate of actively managed funds. He’s a regular and outspoken commentator on raucous stock-picking shows like CNBC’s Halftime Report, on which he recently said he “took a dumb pill” by not buying Netflix stock at a fraction of its current price. (Shares in the Los Gatos, California–based online movie and TV streaming provider closed at $474.91 on February 27, up 39 percent since January 12.)

Although investors’ love affair with ETFs has so far been part of a bigger move to indexing strategies, active managers are thinking about how to leverage these products’ tax, cost and other advantages. Last year U.S. investors sent more money to passive funds than active ones for all equity categories, according to Chicago-based research firm Morningstar. In fact, active U.S. equity experienced outflows for ten months in 2014, even as its passive counterpart saw inflows for 11 months.

Gabelli, the founder, chairman and CEO of $47.5 billion, publicly traded GAMCO Investors, isn’t reinventing the ETF wheel to get into the business. His Rye, New York–based firm is licensing NextShares’ ETFs. Offered by Navigate Fund Solutions, a subsidiary of Boston-based Eaton Vance Management, the NextShares funds protect the confidentiality of portfolio information.

Traditional ETF portfolios are completely transparent to the market, not a concern for index trackers. But active managers don’t want to broadcast their unique securities picks on a daily basis, giving others a chance to profit from the information. For example, if traders know that GAMCO is building a position in a certain stock — say, Twentieth Century Fox Film Corp. — they can buy shares and drive up the price. “We do small-cap, nanocap, microcap investing,” Gabelli says. “We don’t want our portfolio exposed daily. It defeats what we do — to provide incremental valued-added.”

Part of Gabelli’s motivation for licensing NextShares is to make his active funds as low cost as possible. The tax efficiency of exchange-traded products is particularly appealing because traditional fund investors get treated unfairly, he says. When real estate investors sell a property and roll the proceeds into a new investment, they don’t pay tax. Fund investors pay tax on capital gains distributions even if they reinvest the money in the fund. But through so-called in-kind redemptions, ETFs can remove stocks that have significantly increased in value and could trigger large capital gains taxes.

“We have research,” Gabelli says. “While the rest of the world is going the other way, we’ll get an advantage. Now we have an outlet for that in a nontransparent ETF.”

For the full story from II, please click here

LIVE FROM ETF.com Conference: Expert Bashes ETFMs

Markets Muse senior staff dumped their snow boots and instead, has boots on the ground at the Florida ETF boondoggle hosted by ETF.com. One of the more reportable take-aways (so far) is our capturing the following comment about the much talked about new product trend focused on non-transparent, hedge fund-esque ETFs,  courtesy of one industry expert (who chooses not to be cited for fear of having to check under his car every day before starting the engine):

“Actively-Managed ETFs aka ETMFs will only benefit ‘Issuers’ and respective ‘managers’ who promote HF-style styles under the guise of a so-called “index.” At best, this is a marketing ploy to capture AUM and fees for a product that is completely counter-intuitive to the premise that made ETFs attractive in the first place (transparency and hence liquidity). Hedge Funds such as those managed by the Jeff Gundlach’s of the world charge “2 & 20” but can only target a relatively small universe of investors. With the assortment of ETMFs on the drawing board, the only thing that is clear and transparent is that these ‘ETMF innovators’ are merely trying to ‘scale’ their secret-sauce models by targeting millions of less-sophisticated investors (via a 50% reduction in typical management fees) and folks who would otherwise not pass the institutional investor litmus test (QUIB) for a typical hedge fund that changes its positions more frequently than most folks change their underwear.”

Goldman Smacks ..It’s Lips re: ETFs; In Discussions to Acquire ETF Issuer IndexIQ

MarketMuse update courtesy of exclusive reporting by Reuters’ Jessica Toonkel

On the heels of this week’s announcement by Janus Capital to acquire ETF Issuer VelocityShares, presumably as a vehicle for Bill Gross to further package his fixed-income strategies, and this past June’s announcement from the London Stock Exchange to acquire index specialist Frank Russell Company, the bubbling market for ETF platforms is bubbling even more..as evidenced by this scoop from Reuters’ Jessica Toonkel:

(Reuters) – Goldman Sachs Group is in discussions to acquire IndexIQ, a Rye Brook, New York-based exchange-traded fund provider, according to three sources familiar with the situation.

The deal, if finalized, would enable Goldman to introduce passively managed and actively-managed exchange traded funds within months.

A Goldman Sachs Asset Management spokeswoman declined to comment. A call and e-mail to Adam Patti, the chief executive of IndexIQ, was not immediately returned.

Read more: http://www.businessinsider.com/r-exclusive-goldman-sachs-in-talks-to-acquire-etf-provider-indexiq—sources-2014-10#ixzz3GLUDoUrf

AdvisorShares Peritus High Yield ETF ($HYLD) Lists Options On CBOE; First High Yield Actively-Managed ETF with Listed Options

AdvisorShares, a leading sponsor of 17 actively managed exchange-traded funds (ETFs), announced today that the AdvisorShares Peritus High Yield ETF (NYSE Arca: HYLD), the first high yield actively-managed ETF has met listing requirements of the Chicago Board Options Exchange® (CBOE®) and that HYLD options are now listed for trading on the CBOE.

Actively-Managed ETFs Poised to Proliferate in 2013 (?)

Courtesy of WSJ Dec 28 Weekend Edition and reporter Joe Light

The world of ETFs is about to get pumped up.

A long-heralded blossoming of actively managed exchange-traded funds is one step closer, now that the Securities and Exchange Cwsjlogoommission earlier this month removed a hurdle that discouraged money managers from releasing such products.

For small investors, the change could mean more choices. But it also could cause money managers to add more risk to their portfolios as previously forbidden investment strategies become available, analysts say.

In March 2010, the SEC stopped approving new actively managed ETFs that use derivatives, which are contracts that derive their value from that of underlying securities, such as options and credit-default swaps. Portfolio managers use derivatives frequently in actively managed mutual funds to protect against the threat of bond defaults, currency fluctuations and other risks. The ban discouraged fund companies from starting actively managed ETFs. Instead, the vast majority of ETFs are low-fee index funds, which passively track an established benchmark.

Earlier this month, Norm Champ, director of the SEC division of investment management, said in a speech that the agency now will approve the use of derivatives in ETFs under certain conditions.

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