Part I | Actively Managed ETFs | No, that’s not an oxymoron.

Actively Managed ETFs, an oxymoron?

Actively Managed ETFs, an oxymoron?

Part I of II. CLICK HERE | Read Part II

A product with all the cost and tax efficient advantages of an ETF that is also actively managed and can maintain portfolio management trading confidentiality?  This rare combination of attributes has (nearly) arrived.

During a recent NICSA webinar, “NextShares – Working with ETFs,” presenters from an Eaton Vance Corp. affiliate, explained the ins and outs of NextShares and how this new class of fund shares compares to current fund structures.

With popularity of ETFs soaring and assets of long-term active equity and bond funds in retreat, many are looking to the next stage of mutual fund growth. One potential option may be found in NextShares, an ETF-like share class structure currently making its way through regulatory approvals.

According to NextShares, what are the benefits of actively managed ETFs?

For investors:  Lower costs, greater tax efficiency than traditional active funds:

  • No sales or distribution fees
  • No flow-related trading costs
  • Use of in-kind securities to meet redemptions reduces fund capital gains and tax obligations and reduces cash “drag” in up markets

NextShares experts claim these benefits accrue to higher performance. One statistic they cite: while only 43% of active equity mutual funds beat their corresponding index ETF between 2007-2013, 65% would have outperformed using a NextShares actively managed ETF structure due to efficiencies alone. The same NextShares study showed an average annual savings of 63 basis points.

For fund companies: Lower expenses and trading confidentiality

  • Low operating expenses –substantially reduced TA fees
  • Reduced trading costs, with no impact on management fees
  • Maintain portfolio management trading confidentiality with monthly or quarterly disclosure of holdings
  • Current strategies can be put in the new structure

So far, NextShares has signed on six fund companies, including Eaton Vance, to launch funds using the new structure. Given all these benefits, why hasn’t the response been stronger? Part II of this post may help explain.


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