As Eaton Vance (NYSE: EV) readies its recently approved non-transparent exchange traded managed funds, some anticipate that ETMFs could carve out a larger chunk of the mutual fund industry’s market share, with more investors shifting into the cheaper active investments.
Eaton Vance executives believe that the new ETMFs, which will be launched under the NextShares brand, will likely compete with existing mutual fund strategies as investors capitalize on cheaper costs, reports Jackie Noblett for Financial Times.
“It is reasonable to expect that a significant percentage of what would’ve been the Class I shares sales of the mutual fund to shift to NextShares, which we expect to have a lower expense ratio,” Eaton Vance chief executive Tom Faust said in the Financial Times article.
I shares make up about two thirds of Eaton Vance mutual fund flows, with A shares and C shares accounting for the balance.
The fund provider will be marketing NextShares as a low-cost and potentially better-performing and more tax-efficient option to traditional open-end, mutual funds.
ETMFs are a new concept that marry the liquidity and tax efficiencies that have attracted investors to ETFs with active investment strategies, while maintaining the confidentiality of current portfolio trading information. The new investment structure will trade on an exchange, and to achieve their non-transparent nature, the products will trade based on their net asset value, or utilize a so-called NAV-based trading.
“NextShares can be expected to trade at prices that are consistently close to NAV in the absence of daily portfolio holdings disclosure,” according to Eaton Vance.
Kara Stein, one of five commissioners at the Securities and Exchange Commission, argues that ETMFs could potentially “break through the ceiling” that kept fund sponsors from launching actively managed ETFs, reports Peter Ortiz for the Financial Times.
There are currently 122 actively managed U.S.-listed ETFs on the market with $18.2 billion in assets under management. Many money managers have been loath to launch an active ETF due to the investment vehicle’s transparent nature and potential for front running.
The Securities and Exchange Commission approved Eaton Vance’s new ETMF investment vehicle earlier last month. The first suite of NextShares ETMFs is expected to come to market at around springtime. All but one of the 18 expected ETMF offerings will be an adaption of existing mutual fund strategies. [Eaton Vance Lands Approval for Non-Transparent ETF]
Nevertheless, the some at the SEC remain skeptical about the new non-transparent investment vehicle. For instance, Stein argues that there remains some concerns, especially if there are not enough authorized participants to maintain efficient price discovery and liquidity. The concerns are warranted as we move into a new investment frontier.
For more information on the exchange traded managed funds, visit our ETMFs category.
Max Chen contributed to this article.