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Non-Transparent Active ETFs Approved - Now What?

The SEC approved Eaton Vance’s and NASDAQ’s application for creating a new innovative ETF structure called Exchanged Traded Managed Funds (ETMFs). So, now non-transparent actively-managed ETFs can come to market, even though the SEC has said they can't be called ETFs. What does it mean and who benefits from them? 

Well, Eaton Vance’s shareholders benefited as the stock (EV) rose almost 20% on last week’s news. Other winners include the ETF industry, asset managers and financial product innovation overall. Most important of all investors win. There is now a new structure /delivery system to obtain more efficient returns on their investments.

ETMFs are actually just mutual funds that will traded on an exchange but still priced at the 4 p.m. NAV. There will be a new way to think about order input as the funds will trade at “NAV” with a discount or premium. More detailed information can be found through Eaton Vance’s new ETMF group called NextShares (

The true advantage as described in the Nov. 8 Barron’s article “All Hail the ETF” is that this new fund structure will create a hybrid mutual fund/ETF where the  active style of the fund stays intact while creating greater tax efficiency and cost saving than a traditional mutual fund.

It may be counter intuitive to some that by getting intermediaries involved in mutual funds (stock exchanges and market makers) that efficiency can be increased and those benefits will be delivered directly to the investor. But that is exactly what happens with an ETMF.

Under the ETF type structure the ETMF produces savings because the trading costs can be transferred to the market makers and away from the fund. This alone should add to the performance of a traditional mutual fund.

ETMFs will not displace any other structure but they will give investors added choice on how investment returns are delivered.

So, kudos to Eaton Vance and NASDAQ for getting this structure approved but there is more to be done. The SEC provided operational approval to the structure but there is still major technology build out that needs to be done, investor education and then they need market acceptance which could take longer to achieve.

The ETF industry should also get a nod here, it is an industry that continues to innovate and produce new mechanisms to delivery opportunity to investors in an efficient manner. ETMFs are just the latest innovation to be approved but there are many more being developed.

Richard Keary is the Founder/Principal of Global ETF Advisors LLC, an independent management consulting firm that specializes in the Exchange Traded Products industry.

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