Eaton Vance, one of the most venerable names in active mutual fund management, is continuing its quest to embrace a rising movement toward a unique exchange traded fund structure that doesn’t require issuers to disclose holdings on a daily basis.
On Thursday, Boston-based Eaton Vance said that “Eaton Vance Management, a wholly-owned subsidiary, and Eaton Vance Exchange-Traded Fund Trust (together, the Applicants) have filed a fourth amendment to the application with the U.S. Securities and Exchange Commission seeking exemptive relief to permit the offering of exchange-traded funds (ETFs) that would employ a novel method of supporting efficient secondary market trading of fund shares (the Clearhedge™ Method),” according to a statement.
Eaton Vance has some experience with actively managed exchange traded funds, previously listing some products under the NextShares label. Last month, Morgan Stanley said it’s buying Eaton Vance for $7 billion.
The Active ETF Wave
A new generation of active ETFs are constructed similarly to flagship investment strategies that have served fund family clients well for decades. The active ETFs use the same portfolio managers as their corresponding mutual funds and employ the firm’s long-standing strategic investing approach, characterized by rigorous research, risk awareness, and independent decision making. This could be an area of growth in which Morgan Stanley can leverage in the Eaton Vance purchase.
“As proposed, ETFs utilizing the Clearhedge Method would (i) publicly disclose prior to the beginning of U.S. market trading each business day a ‘NAV Reference Portfolio’ generally consisting of liquid market instruments trading throughout U.S. market hours and designed to closely track the daily performance of the ETF’s actual portfolio; and (ii) provide for market makers and other arbitrageurs active in the ETF’s shares to enter into ‘Clearhedge Swap’ transactions with the ETF, allowing for a precise hedge of their ETF shares positions,” according to Eaton Vance.
The ClearHedge method is subject U.S. Patent 10,102,573 and pending patent applications. Eaton Vance has $517 billion in assets under management. They did not specify when the new active ETFs could come to market.