Eaton Vance Corp. asked U.S. regulators for permission to start a series of actively managed exchange-traded funds that wouldn’t disclose their holdings daily.
Eaton Vance filed with the U.S. Securities and Exchange Commission to open what it calls exchange-traded managed funds, or ETMFs, the Boston-based company said today in a statement. The funds would mirror existing Eaton Vance mutual funds and the firm seeks to license the model to other fund providers, according to the statement.
Active ETFs typically combine the security selection of a fund manager with the intra-day trading and cost-saving characteristics of ETFs. Companies interested in that hybrid have so far been largely discouraged from opening products, especially those focused on equities, by the SEC’s requirement for daily disclosure of ETFs holdings. Active ETFs in the U.S. hold $12.3 billion, less than 1% of assets in the $1.4 trillion ETF industry, according to data compiled by Bloomberg.
“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,” Eaton Vance said in the statement.
Eaton Vance, the manager best known for selling products designed to minimize taxes, managed about $248 billion in assets as of Jan. 31.
The disclosure of holdings enables market makers to execute arbitrage trades that keep an ETF’s share price in line with the underlying value of its assets. Eaton Vance’s model would use so-called net-asset-value-based trading that would allow that process to take place without full disclosure of holdings.
BlackRock, the world’s largest money manager, asked the SEC in September 2011 for permission to open active ETFs that wouldn’t reveal holdings daily. It hasn’t yet received approval.
Companies have said they fear the mandatory transparency of ETFs makes it too easy for opportunistic traders to jump in ahead of transactions made by an active manager, allowing those traders to benefit from resulting price changes, a tactic known as front-running. Most ETFs are passively managed, with their holdings mimicking indexes.
That concern isn’t as pronounced on the fixed-income side, where the opacity and negotiated nature of transactions in the over-the-counter bond market protect managers. Pacific Investment Management Co.’s Bill Gross has gathered $4.3 billion in 13 months into the ETF version of his Pimco Total Return Fund.