“There’s absolutely demand for what NextShares seeks to do, which is to lower the expenses, improve the performance and improve the tax efficiency of actively managed funds,” Clarke says. ”ETFs are popular because they tend to have lower expenses, which tend to lead to better performance. Coupling those attributes with active strategies is a win for investors and for fund managers.”
The fund structure allows active managers the confidentiality to trade within their portfolios free from the eyes of copycats and front-runners while providing the transparency many regulators and market makers prefer. NextShares will generally not be required to hold cash reserves to meet shareholders’ liquidity needs.
At the end of 2014, Eaton Vance received exemptive relief, the first hurdle to release NextShares, from the SEC. Throughout 2015, the SEC rejected several other attempts to create an actively managed ETF-like product, until December, when the regulator approved the NextShares structure and 18 proposed Eaton Vance funds.
“My guess is that these products will develop and continue to evolve rapidly,” says Vigrass. “We’re visioning more entrants into this space, and there’s a lot of interest primarily from the RIA tactical and strategic portfolio business.”
Clarke says that additional broker-dealer relationships and fund launches will be announced in the near future, with Hartford Funds, Victory Capital and Gabelli Funds among the dozen-or-so managers lining up to launch NextShares products when the regulatory hurdles are cleared.
“For the most part, we were waiting for Eaton Vance to get registration statements approved so other participants have a template to use when filing their own registration documents,” Clarke says. “Those firms are now engaged in the business of working on their own statements and filings with the SEC.”
Other distributors are expected to come online as they meet regulatory and technological requirements to offer the products.
“We’re working with Envestnet to bring portfolio models to the market that would include NextShares,” Clarke says. “Their inclusion is contingent on a new product that is still in the formative stage, and we’re in discussions with other firms to bring NextShares to market.”