In an attempt to jump start the newly crafted exchange traded managed fund space, Eaton Vance Corp will help brokerages pay for technology costs, an industry first.
Showing Eaton Vance’s commitment to the new ETMFs offerings, Tom Faust, Eaton’s chief executive officer, said that the company will help some brokerages pay costs to make the new breed of funds readily available to investors, and brokerage firms may also share in the revenues from the sale of the funds, reports Jessica Toonkel for Reuters.
“The biggest challenge we see at this stage of the game is getting broker dealers,” Faust told Reuters. “If we are looking to launch before the end of the year, we need the broker dealers to start making systems changes and otherwise preparing themselves to offer this to clients.”
Because ETMFs are breaking new ground, brokerages would have to take a new kind of order from investors. Consequently, Eaton Vance hopes to cover some of the technology costs of distributors to better facilitate trades.
“This is the first time I have ever heard of a firm offering to pay some brokerage costs for a new product,” Ben Johnson, an ETF analyst at Morningstar, said in the Reuters article.
Nevertheless, due to ETMF’s unique and unfamiliar concept, many brokerage firms and industry consultants are wary about investor demand and how they will receive compensation for selling the new investment tool. For instance, Fidelity Investments and TD Ameritrade have stated they will not sell the funds until there is sufficient demand. While Eaton Vance has started to promote the new funds, many still do not know about the products.
“At this stage, there is limited awareness of the product and investors are not currently asking us to trade ETMFs when they become available,” a Fidelity spokesman told Reuters.
ETMFs, which will be launched under the NextShares brand, will combine some of the best features of ETFs and traditional actively managed open-end mutual funds. [ETMFs: A Cost-Efficient Alternative to Active 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. However, it is important to note that ETMFs are not ETFs. 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. [New ETMFs Could Eat Away At Mutual Funds’ Market Share]
The new type of funds may be a better alternative to the old mutual fund structure. Faust pointed out that ETMFs will be cheaper, more tax efficient and better performing than traditional open-end funds.
Eaton Vance has also licensed the new fund structure to other money managers, including Gabelli Investors and American Beacon Advisors. Eaton also expects to announce three more firms signing up in the weeks ahead. [American Beacon Will Partner With Eaton Vance on ETMFs]
For more information on exchange traded managed funds, visit our ETMFs category.