Saturday, March 5, 2016

Slow Saturday Special: A Fau$tian Bargain

I make one every time I plunk down my $2:

"Eaton Vance launches new breed of ETF" by Beth Healy Globe Staff  February 26, 2016

Eaton Vance Corp.’s new experiment in exchange-traded funds — blending active stock-picking with the popular ETF structure of trading on a stock exchange — has gone live.

The Boston-based investment firm’s Eaton Vance Stock NextShares began trading Friday on the Nasdaq Stock Market among firms, known as market makers, that agree to buy and sell shares to keep the market liquid. The fund, the first ETF that isn’t required to disclose its holdings on a daily basis, will be available to individuals, financial advisers, and institutions starting Monday.

The $2 trillion ETF market is dominated by funds that passively track indexes such as the Standard & Poor’s 500. Individual and institutional investors alike have flocked to their low fees and ability to trade on an exchange like stocks. Conventional index mutual funds are bought and sold at the price set at the end of the trading day.

The new exchange-traded fund is a basket of diversified stocks managed by Eaton Vance’s Charles Gaffney. It uses the S&P 500 as a benchmark, but Gaffney can hold shares that aren’t part of that index.

Regulators have been skeptical about this breed of actively managed ETFs, in part because of the lack of transparency of their holdings. Eaton Vance won initial approval for the fund with the Securities and Exchange Commission in November 2014 but then had to do further work to gain approval for listing with Nasdaq.

Instead of starting with a slate of active ETFs all at once, Eaton Vance is testing this one first, and aims to follow with others.

“The company was hoping to have more of a suite to offer on the first day or in the early innings,’’ said Stephen Tu, a senior analyst with Moody’s Investors Service in New York.

The market may want to see how this ETF trades. In order to get the full benefits of lower costs generally associated with ETFs, there have to be significant assets in the fund to make it easy and inexpensive to buy and sell.

For some, the NextShares concept is a kind of Hail Mary pass for the traditional, actively managed fund industry. The question is whether investors will embrace active management in this new package.

“The appetite in the marketplace right now is going toward vanilla ice cream,’’ Tu said, meaning passive ETFs. Likening traditional, active mutual funds to strawberry ice cream, he said, “whether it’s in a cone or a cup, you may not buy that strawberry ice cream.”

At the end of the day, he said, the active ETFs still have to prove they can outperform passive funds.

“The Fund is the first of several NextShares funds that we expect to introduce this year,” Thomas E. Faust Jr., chief executive of Eaton Vance, said in a statement. “The Fund’s introduction provides the first opportunity to demonstrate the performance, tax efficiency and trading characteristics of NextShares.”

The company has 18 NextShares funds registered with regulators, with strategies including equities, fixed income, absolute return and multi-asset funds.

Eaton Vance, which oversees $308 billion in assets, also has licensed the product to other investment firms.


Also see: ETF Entree 

I'll keep it warm until you are ready to eat.