Tag Archives: Precidian Investments

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ETF News

JP Morgan Takes Stake in ETF firm Global X

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Big Banks and Broker-Dealers Continue to Carve Out Stakes in ETF Ecosystem

(Reuters) JPMorgan Chase & Co’s (JPM.N) asset management arm said it has taken a passive, minority stake in New York-based exchange-traded fund (ETF) provider Global X Management Co LLC.

Traditional asset managers have been eager to build ETFs, which are typically lower cost and have been gaining assets at a faster clip than other investment products. ETFs account for $3 trillion globally.

Legg Mason Inc (LM.N) said it January it had taken a stake in ETF company Precidian Investments.

JPMorgan Asset Management, which manages $1.7 trillion, launched its first seven U.S. ETFs over the last two years, raising $339 million, according to Lipper. JPMorgan Chase also backs the $3.2 billion JPMorgan Alerian MLP ETN (AMJ.P).

Global X, founded in 2008, offers over 40 ETFs and is currently developing an ETF that will attempt to profit on consumption habits of people in their twenties.

The company also offers funds based on JPMorgan indexes, including the Global X JPMorgan Efficiente ETF (EFFE.P).

(This story has been refiled to correct to show backer of Alerian MLP ETN refers to JPMorgan Chase, not JPMorgan Asset Management in paragraph four)

 

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Actively-Managed ETF Smackdown: Eaton Vance vs. Precidian

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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.

 

 

 

ETF News

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

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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 →

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ETF News

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

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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

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Blackrock ETF Blocked By SEC; Non-Transparency is Not Good Says Regulator..Duh…

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MarketsMuse post courtesy of extract from report by Barron’s Johanna Bennet..our Editorial team leads in with “How could anyone think that an ETF (actively-managed or passive) that doesn’t disclose the underlying components to its investors could pass muster with regulators, no less investors?

The SEC has denied requests that would have allowed non-transparent active ETFs to hit the U.S. market.

In decisions issued earlier today, the regulatory agency denied applications by Precidian Investments and Blackrock’s (BLK) Spruce ETF Trust unit seeking to launch a novel type of actively managed exchange-traded fund that would not be required to disclose its portfolio holdings on a daily basis.

Investors can read the SEC rulings for Precidian here and review the Blackrock decison here.

Active ETFs are available in the U.S. But SEC rules require the funds disclose their holdings daily, which has discouraged firms from offering active products. The proposed non-transparent ETFs would disclose holdings quarterly, as mutual funds do, and often with a 60-day lag.

Precidian and Blackrock are among several firms proposing non-transparent active ETFs, including Eaton Vance (EV), State Street (STT) and T. Rowe Price (TROW). According to ETF.com, proponents of the rule change argue that it allows fund managers to protect their investing ideas and tactics and prevents front running.

Eaton Vance and State Street did not immediately respond to requests for comment. T. Rowe said it would still pursue its own proposal.

But at the heart of the SEC’s ruling regarding Precidian is a concern that the mechanism proposed to keep the market price of such funds in line with their net asset values is insufficient. As the SEC ruling reads: Continue reading →