In an attempt to prevent front-running due to the disclosure rules associated with the actively managed exchange traded fund structure, Eaton Vance Management has filed with the Securities and Exchange Commission to offer “exchange traded managed funds” or ETMFs that would not disclose holdings daily.
According to the SEC filing, ETMFs would act as a new type of open-end fund that provides confidentiality of the current portfolio holdings while maintaining the cost and tax efficiencies and protections associated with ETFs.
ETMFs would trade on an exchange, with prices linked to the fund’s next-determined daily net asset value, or NAV. Essentially, the product allows a type of NAV-based trading, which was first conceived by Gary Gastineau, the principal at ETF Consultants.
The new product structure would help the firm prevent front runners from exploiting the strategies – the ETF structure requires daily disclosures, which could allow others to mimic the holdings and strategy. [Actively Managed ETFs]
“Active managers have to date largely avoided introducing their strategies as transparent ETFs because the required daily holdings disclosures can facilitate front-running of portfolio trades and enable copycat investors to replicate a fund’s portfolio positioning,” according to an Eaton Vance note. “By removing the requirement for daily portfolio transparency, ETMFs can enable investors to access a broad range of active strategies through a vehicle that provides the investor benefits of an exchange-traded fund.”
The firm will adapt existing Eaton Vance mutual funds into a suite of ETMFs under its Navigate Fund Sollutions LLC brand.