Northern Trust, the one-time issuer that began making plans for a second run at the ETF industry last year, has joined the crowd of major financial institutions seeking approval to launch actively-managed ETFs. In a recent SEC filing, Northern Trust requested permission “to create and operate an actively-managed series of the Trust…that offers exchange-traded shares.” The filing cast a wide net, noting that proposed funds could invest in foreign and domestic stocks and bonds.
Northern Trust’s first run in the ETF space was unsuccessful–and quite brief. The company launched 17 ETFs in the spring of 2008, including funds focusing on the economies of Ireland, Israel, Germany, France, and South Africa. About eight months after launch, in early 2009, Northern Trust announced that it was pulling the plug on its infant ETF business. “The Board considered current market conditions, the inability of the Funds to attract significant market interest since their inception, their future viability as well as prospects for growth in the Funds’ assets in the foreseeable future,” said Northern Trust in a press release at the time. When they were shuttered, the 17 NETS ETFs had aggregate assets of about $35 million.
When Northern Trust announced its decision to exit the industry, U.S. ETF assets stood at about $540 billion. In the three years since that total has nearly doubled, and many products targeting the corners of the global equity market vacated by Northern Trust have become quite successful. The iShares MSCI Israel Index Fund (EIS), which debuted around the same time of the now-extinct NETS TA-25 Index Fund (TAV), has nearly $140 million in assets [see ETF Hall of Shame].
Seeking to return to the ETF space, Northern Trust filed last May for approval on traditional index-based ETFs. The most recent filing seeks additional relief to offer actively-managed products, putting Northern in a crowd that includes Legg Mason, T. Rowe Price, and many other large financial institutions [see Handicapping The Active ETF Race]. Many of those firms have been waiting for approval to move forward with a foray into the ETF space for a long time. The Securities and Exchange Commission (SEC) began a review into the use of derivatives by mutual funds and ETFs in March 2010, and that process has dragged on for nearly a year now. Approvals of new exemptive relief applications have been on hold, and there is uncertainty in the industry as to when the “deep freeze” might end.
Thanks to the SEC review, the exemptive relief already held by some firms has become a strategic asset. Russell recently purchased U.S. One, the firm behind the actively-managed One Fund (ONEF), and has wasted little time in making plans to roll out its own ETF lineup. Grail Advisors recently indicated that it is on the verge of a sale, though the identity of potential acquirers has remained a secret (Grail’s CEO mentioned only that the firm was in discussions with a “well known firm in the money management space that is just as excited about the active ETF space as we are.”)
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Disclosure: No positions at time of writing photo is courtesy of Daniel Schwen.