The Securities and Exchange Commission yesterday said it intends to allow Eaton Vance to offer non-transparent, actively managed exchange-traded funds that won’t require daily disclosure of portfolio holdings.

In March 2013, Eaton Vance first filed with the SEC for exemptive relief from certain provisions of the Investment Company Act of 1940 to bring its exchange-traded managed funds (ETMFs) structure to market. It subsequently made three amended filings for permission to roll out the ETMF format, which employs net asset value (NAV)-based trading where fund shares would be purchased and sold on an exchange throughout the trading day at market-determined spreads to the fund's ending NAV on that day.

This format is designed to facilitate trading without the need for daily portfolio transparency, which has been a big bugaboo for mutual fund companies who want to cash in on the fast-growing ETF market but have been reluctant to roll out active ETFs with daily disclosure of portfolio holdings.

As part of its SEC filing, Eaton Vance plans to create 18 ETMFs branded under the NextShares name. Seventeen of those funds would mimic existing Eaton Vance mutual fund strategies and one would be a new fund.

Eaton Vance acquired the rights to the ETMF structure from Managed ETFs LLC in 2010, and the following year formed a wholly owned subsidiary, Navigate Fund Solutions LLC, to develop and commercialize NAV-based trading of ETFs. Along with creating ETMFs that mirror Eaton Vance’s existing mutual funds, Navigate plans to license the format to other fund companies.

In late October, the SEC shot down a proposal from Precidian Investments and BlackRock to list and trade non-transparent, actively managed ETFs.

BlackRock, State Street Global Advisors and Invesco PowerShares, along with leading mutual fund player American Funds, all had filed for SEC approval for non-transparent, actively managed ETFs using a patented strategy developed by Precidian that employs a blind-trust structure. Precidian also had filed with the SEC to launch its own active ETFs.

In the case of Eaton Vance, the SEC yesterday announced a notice of intent to issue an exemptive order to permit the offering of ETMFs, and that’s subject to a period of time elapsing and no hearing being requested and granted. Absent a request for a hearing, an exemptive order would be issued after December 1.

“According our legal counsel, the last time the SEC held a hearing in an exemptive order matter was in 1992,” says Stephen Clarke, president of Navigate. He notes the ETMF format seeks to have better performance and improved tax efficiencies versus mutual funds, while being protective of portfolio trading information.

“We hear three reasons from portfolio managers why they're reluctant to adopt the active ETF structure,” Clarke says. “First, frontrunning of trades by other market participants can potentially dilute investor returns. Second, portfolio managers generally don’t like sharing their portfolios because it gives real-time research insights to the marketplace. The third reason is that other investors can replicate a portfolio manager’s strategy without paying the manager.”

First « 1 2 » Next