Tag Archives: non-transparent ETFs


Eaton Vance Launches Non-Transparent ETF aka “ETMF”

Eaton Vance Corp. today launched the first-ever non-transparent, actively-managed ETFs. Their new creation is called an exchange-traded managed fund (ETMF) and goes under the brand name NextShares.

Quite a coup considering last week’s MarketsMuse story “SEC Chair White Says I’ve Got a Dream” [for the SEC to actually read offering prospectus of complex ETFs before rubber-stamping their flotation in the market]. For those confused about what the heck a non-transparent, actively-managed exchange-traded fund is (and whether it is an appropriate investment vehicle for you/your clients), keeping reading..

ETMF-NextShares(Boston Globe)-Eaton Vance Corp.’s new experiment in exchange-traded funds — blending active stock-picking with the popular ETF structure of trading on a stock exchange — launched Friday morning.

The Boston-based investment firm’s new fund, called Eaton Vance Stock NextShares, a diversified stock portfolio, listed and begin trading on the Nasdaq Stock Market. Individuals, financial advisers and institutions can start trading in the shares Monday.

It’s been a long road for Eaton Vance to get regulatory approvals and bring this product to market in the crowded, $2 trillion ETF arena dominated by inexpensive, passive portfolios that mimic indexes like the Standard & Poor’s 500.

What is a non-transparent ETF??? Click Here To Find Out

And instead of launching a planned roster of new active ETFs, Eaton Vance is testing this one first, and aims to follow with others.

“The company was hoping to have more of a suite to offer on the first day or in the early innings,’’ said Stephen Tu, a senior analyst with Moody’s Analytics in New York.

The market may want to see how this ETF trades. It’s different from passive funds in that its holdings won’t be as transparent; investors won’t get to know what the fund owns every day.

And in order to get the full benefits of lower costs generally associated with ETFs, there have to be significant assets in the fund to make it easy and inexpensive to buy and sell.

For some, the NextShares concept is a kind of hail-Mary pass for the traditional, actively managed fund industry. The question is whether investors will embrace active management in this new package.

“The appetite in the marketplace right now is going towards vanilla ice cream,’’ Tu said, meaning passive ETFs. Likening traditional, active mutual funds to strawberry ice cream, he said, “whether it’s in a cone or a cup, you may not buy that strawberry ice cream.”

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.”

SEC Flip-Flops on Non-Transparent ETFs; What’s Next? “NextShares!” ; Eaton Vance 18, BlackRock: 0

Neale Donald Walsch - Believing is SeeingA MarketsMuse Special column….

Within less than 2 weeks after the all-visionary SEC blocked NYSE Arca from listing non-transparent, actively managed ETFs developed by ETF Industry icon BlackRock Inc., as well as those designed by upstart Issuer Precidian Investments (see MM edition Oct 23), this past Thursday, the same almighty securities regulator over-ruled itself and approved a different set of similarly non-transparent and actively-managed ETFs concocted by Eaton Vance, a competing ETF powerhouse and multi-billion asset manager within the $2tril + exchanged-traded fund marketplace.

Why was BlackRock “boxed out from under the board”, yet Eaton Vance victorious in the eyes of the SEC, the agency that is presumably mandated to protect retail investors from fund managers who prefer not to disclose their so-called ‘secret strategy sauce’? Its a head-scratcher for sure, particularly when the SEC’s turn-down ruling against BlackRock included the following statement: Continue reading

non-transparent ETFs

SEC SmackDown of Non-Transparent ETFs-No Secret Sauces!

In an effort to reign in a powerful campaign to launch secret sauce ETFs that have no business being used by ordinary investors, the SEC scored a smackdown on the creation of non-transparent ETFs in a recent ruling that blocks plans by ETF giant BlackRock as well as Precidian Investments to issue ETFs’ whose underlying constituents would otherwise be, well, non-transparent.

The topic of non-transparent ETFs has been a focus of several MarketsMuse articles in recent months. As reported last week by Bloomberg LP, The U.S. Securities and Exchange Commission rejected plans by BlackRock Inc. and Precidian Investments to open a new type of exchange-traded fund that wouldn’t disclose holdings daily, setting back efforts to bring more actively managed ETFs to market.

The SEC, in preliminary decisions announced yesterday, denied BlackRock’s September 2011 and Precidian’s January 2013 requests for exemptive relief from the Investment Company Act of 1940. The move puts on hold plans by the firms to start the first non-transparent ETFs.

The Precidian proposal falls “far short of providing a suitable alternative to the arbitrage activity in ETF shares that is crucial to helping keep the market price of current ETF shares at or close” to its net asset value, Kevin O’Neill, a deputy secretary at the SEC, wrote in the letter.

The ruling hinders plans by asset managers to sell funds run by traditional stock-picking managers in an ETF package. Firms including Capital Group Cos. have asked for similar regulatory approval as they seek to expand offerings in the fastest-growing product in the asset-management industry.

Money managers have been discouraged from introducing active ETFs, which combine security selection with the intraday trading and some of the cost-saving features of traditional ETFs, because the SEC’s requirement for daily disclosure of holdings would make it easy for competitors to copy, and traders to anticipate, a manager’s portfolio changes.

‘Not Surprised’

“We want to work with the SEC — we believe it’s part of the process,” Daniel McCabe, Precidian’s chief executive officer, said in a telephone interview. “We’re not surprised by the fact that they have questions, but questions can be answered.”

ETF providers must disclose holdings every day to enable market makers to execute trades that keep the share price in line with the underlying value of the fund’s assets. Firms including BlackRock, Precidian and Guggenheim Partners LLC proposed structures that they say would allow the funds to remain priced in line with assets, without revealing specific positions.

T. Rowe Price Group Inc. in Baltimore and Boston’s Eaton Vance Corp. are also among fund firms seeking SEC approval for non-transparent active ETFs. None of the applications has been approved.

“We are still pursuing our own proposal to offer non-transparent active ETFs,” Heather McDonold, a spokeswoman for T. Rowe, said in a telephone interview.

Commercial Opportunity

Melissa Garville, a spokeswoman for New York-based BlackRock, and Ivy McLemore, a spokesman for Guggenheim, declined to comment. Robyn Tice, a spokeswoman for Eaton Vance, and Elizabeth Bartlett for State Street Corp. didn’t immediately respond to an e-mail and telephone messages seeking comment.

BlackRock was one of the first U.S. fund managers to ask the SEC for approval, after spending three years crafting the product. Their leading role in seeking approval for a non-transparent active ETF has spurred excitement within asset management for the product’s prospects, according to Todd Rosenbluth, director of mutual-fund and ETF research at S&P Capital IQ in New York.

Mark Wiedman, BlackRock’s global head of its iShares ETF unit, said in May that the firm was confident the products would work, “but we don’t actually think it will be much of a commercial opportunity.”

For the full story from Bloomberg reporter Mary Childs, please click here