A total of 12 investment managers including Hartford Funds, Pioneer Investments, Gabelli Funds and Victory Capital have agreed to sponsor similar ETFs with the NextShares brand.

‘Better Results’

“We’re not trying to develop product for the sake of developing product,” said Stephen Clarke, president of NextShares. “We’re trying to deliver better results to investors in active strategies.”

Elisabeth Kashner, director of ETF research at FactSet Research Systems Inc., called the new asset class “a solution in search of a problem.” She added: “If you’re in ETF investor, the payoff is unclear.”

No ‘E’

New ways to trade ETFs are sprouting up, too. Tradeweb is sidestepping the “E” in ETF by letting clients buy or sell U.S. exchange-traded funds in private electronic auctions. Over-the-counter trading of ETFs is common in Europe, where markets are more fragmented than in the U.S., and Tradeweb has offered this service there since 2012.

Whereas ETFs began as a way for retail investors to gain exposure to asset classes that are typically meant for more sophisticated traders -- such as oil, gold or corporate bonds -- institutional investors now want more access to the funds, said Adam Gould, Tradeweb’s head of U.S. equity derivatives who oversees its U.S. ETF platform. Similar to block trades, the electronic auction lets a user put up to five dealers in competition for a larger-sized deal than they could get on the New York Stock Exchange or Nasdaq Stock Market.

“That results in better pricing” for investors, Gould said. Yet because the auctions bring two individual investors together for a private trade, they aren’t considered alternative trading systems by the SEC, so they face no government oversight. Tradeweb’s users, however, are required to report the their trades to the Financial Industry Regulatory Authority.

Tradeweb is majority-owned by Thomson Reuters Corp. with minority stakes held by banks such as JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. Bloomberg LP, the parent company of Bloomberg News, competes with Tradeweb in offering ETF-trading services to its subscribers.

The average trade size on Tradeweb’s platform is 90,000 shares, with 55 percent of trades in fixed-income ETFs and 45 percent in equities, Gould said. The speed of the electronic auctions and creating a more-efficient way to conduct and manage the trades after the fact are advantages here, he said.