ETMFs Could Change the Fund Industry

April 17th at 12:00pm by Tom Lydon

Mutual funds have been warily eying at the upstart exchange traded fund industry. After Eaton Vance’s proposed exchange traded managed funds structure, we could see major changes in the fund industry.

ETMFs come with low-cost attributes that ETFs enjoy, but unlike ETFs, ETMFs are designed to “disclose their holdings in full at least once quarter with a lag of not more than 60 days,” according to Eaton Vance’s filing, reports Mary Schroeder for Traders Magazine.

Moreover, unlike ETFs, ETMFs will trade at prices based on the net asset value at the market close each day. “Because ETMFs will trade at prices based on their NAV, investors will be able to buy and sell shares at a known premium or discount to NAV,” according to the filing. [Newfangled ETFs from Eaton Vance Would Deter Frontrunning]

The ETMF is the industry’s response to the growing interest for actively managed ETFs, which require to disclose holdings on a daily basis. [Eaton Vance Proposes New Active ETF Structure]

“A good portfolio manager values the research that they’ve done in terms of determining which securities they want in their portfolio and the idea of having to reveal changes every day doesn’t work for them,” said Gary Gastineau, principal at ETF Consultants.

However, the lack of transparency could be a major hurdle for market makers that help create and redeem ETF shares through arbitrage opportunities in a normal trading day.

BlacRock has also filed for another type of ETF structure that limits disclosure to portfolio holdings. Gastineau, though, points out that the BlackRock model does not provide NAV-based trading.

Currently, the proposed ETMF filing is going through the SEC, but if Eaton Vance gains approval, the money manager plans to launch a family of ETMFs based on existing Eaton Vance mutual funds.

“I can’t see any reason why anyone other than someone who wants to be a short-term trader would want to invest in mutual funds instead of ETMFs,” Gastineau said in the article. “If the world was rational there would be no more mutual funds.”

For more information on the ETF industry, visit our current affairs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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