In an attempt to refresh the way investors think about actively managed funds, Eaton Vance is expanding on its NextShares exchange traded managed funds suite to cater toward rising demand for an efficient and cheap investment structure that can serve as an alternative to traditional active mutual funds.
On the upcoming panel, How to Deliver Alpha in an Active ETF, at the Inside ETFs conference on January 22, Stephen Clarke, President of NextShares, will speak about the public perception of the fund industry and offer an alternative to active mutual funds as a way to deliver outperformance.
Exchange traded managed funds are a new concept that marry the liquidity and tax efficiencies that have attracted investors to exchange traded funds with active investment strategies, while maintaining the confidentiality of current portfolio trading information to protect a manager’s “secret sauce.”
NextShares trades take place intra-day with pricing contingent upon determination of the NAV at the end of the day. NextShares use a patented new trading protocol called “NAV-based trading.” In NAV-based trading, all bids and offers are quoted throughout the day relative to the fund’s next-determined NAV and all trade prices are directly linked to NAV. Trade executions are binding at the time orders are matched, with final price contingent upon the determination of NAV.
The patented methodology allows the funds to trade just once per day at the close of business, but investors can still buy and sell exchange traded managed funds in real time during normal hours. Consequently, investors who enter a trade during the day will pay a slight premium to net asset value to acquire shares or receive slightly less than NAV to sell.
Clarke said that many fund managers concluded NextShares was their go-to choice for active strategies as the fund structure allowed managers to maintain product confidential information and capitalize on the efficient fund structure associated with ETFs.
Exchange traded managed funds are “fully compatible with active management” in a way that ETF structures may not be, Clarke said.
Exchange traded managed funds are not exchange traded funds. Eaton Vance has a launched a number of products under its NextShares brand, covering a relatively new structured product called exchange traded managed funds, a hybrid of what some consider the best parts of actively managed mutual funds with an exchange traded fund-esque structure.
“NextShares can invest in all the same asset classes and employ the same strategies as mutual funds,” according to Eaton Vance. “NextShares may replicate the strategies of their managers’ mutual funds or employ strategies offered exclusively as NextShares. Different from most ETFs, NextShares are actively managed and seek to exceed the returns of their performance benchmarks and peer funds. NextShares are designed for long-term investors who seek active portfolio management with structural cost and tax efficiencies.”
A number of companies have already partnered with NextShares to file or launch products, including Brandes Investment Partners, Oaktree Capital Management, Causeway Capital Management, Hartford Funds, Reinhart Partners Inc, Calvert Research and Management, and more recently Russell Investments. NextShares anticipates more launches in the months to come in addition to continued progress with broker dealer platforms carrying NextShares products – for instance, UBS Financial Services announced the availability of NextShares on its UBS brokerage platforms and UBS strategic Advisor.
Most recently, Hartford Funds rolled out the Hartford Global Impact NextShares Fund (HFGIC), which seeks long-term capital appreciation by investing in companies throughout the world that it believes are likely to address major social and environmental challenges.
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