Hancock Now Plans Derivatives In First ETF

Olly Ludwig
January 22, 2013

The effect of the SEC’s about-face on derivatives use in active ETFs is starting to be evident in regulatory paperwork, as a John Hancock filing makes clear.

John Hancock, the Boston-based financial services firm that has plans to market both index and active ETF strategies, filed updated paperwork with the Securities and Exchange Commission making clear it will in the end use derivatives in its first active fund, a clear sign fund companies are responding to the SEC’s recent decision to again allow derivatives in actively managed ETFs.

The updated exemptive relief filing seeking broad permission to market active funds again identified the John Hancock Global Balanced ETF as the first fund it plans to bring to market, but reverses what it has said it previous filings—that it wouldn’t be using derivatives as a complement to the ETF’s overall investment strategy.

Such derivative-related tweaks in strategies by firms such as Hancock looking to enter the ETF market may well become much more frequent in the coming weeks and months following the SEC’s announcement in early December that it would again approve derivatives in new families of funds. The commission had taken derivatives off the table as part of a derivatives review it launched in March 2010.

That review spawned a number of updated exemptive relief filings that nixed derivatives use by firms lining up to begin offering ETFs—many of them, like Hancock, with long illustrious reputations in the world of actively managed mutual funds. When they take the leap is anyone’s guess, but leap they will so that they don’t get left behind as the $1.4 trillion ETF juggernaut continues to gather momentum.

As things stand now, Hancock said the John Hancock Global Balanced ETF will use derivatives to reduce risk and obtain efficient market exposure.

“The fund may, to a limited extent, engage in derivatives transactions that include futures contracts, options and foreign currency forward contracts,” the filing, which was dated Jan. 14, said.

Exemptive relief grants ETF firms exception to sections of the Investment Act of 1940 and are just the first step in the path to launching ETFs. It often takes at least six to 12 months from the date of the initial filing for a company’s first ETF to hit the market, though in this case, that time frame has been much longer because of the derivatives-related shifts.

The company also has an outstanding exemptive relief filing detailing plans to bring to market index ETFs, the first of which is likely to be called the John Hancock Global Infrastructure ETF Fund.




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