Recently, PowerShares filed for an auto-conversion closed-end fund, or “ACCE” fund, which is essentially a closed-end fund (CEF) that automatically converts into an exchange-traded fund (ETF) if certain discount-to-net asset value criteria are met.
PowerShares filed for three additional timely-themed ACCE funds earlier this fall:
- PowerShares Bank Loan Opportunity ACCE Fund
- PowerShares Preferred ACCE Fund
- PowerShares Commodities Opportunities ACCE Fund
PowerShares filed for similar funds two years ago; they have not yet made it to market. As their names suggest, the three PowerShares ACCE funds will invest the majority of their assets in senior loans and senior debt securities, undervalued taxable preferred securities and commodity-linked derivatives, respectively.
According to the registration statement, each CEF will automatically convert into an ETF should a fund’s shares trade at a median discount from its net asset value (NAV) over a set number of days. The registration statement does not provide details as to the median discount or number of days. If history repeats itself, PowerShares’ initial ACCE filing stated conversion will take place, “After 180 days of trading, should the fund trade at a median 3% discount for 30 consecutive trading days.”
Should these funds come to market, they would be the first CEFs to automatically convert into ETFs. There are currently many other CEFs with conversion features, but all require board or shareholder approval.
According to The Wall Street Journal, “It is not yet known whether investors will appreciate the [conversion]clause. The untried method may prove to be a disadvantage to early investors, as exchange-traded funds do not carry the upfront sales loads charged to closed-end buyers.”
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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.