Eaton Vance Files to Start Active ETFs Using New Model that wouldn’t disclose their holdings daily

March 29, 2013 Leave a comment

Eaton Vance Files to Start Active ETFs Using New Model

Eaton Vance Corp. (EV) 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 percent 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.Daily Disclosure

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 Inc. (BLK), 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.

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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