Arrow Files To Self-Index Its ETFs

August 26, 2013

Arrow Funds filed to gain regulatory approval to self-index an expanding roster of ETFs, joining the growing number of firms looking to possibly save on indexing costs and bring relatively granular strategies to market with greater speed.

Specifically, the firm is looking to launch domestic and/or international equity, fixed-income funds or a combination of fixed income and equity funds, dubbed “blended funds.” Arrow Funds is also seeking permission to launch long/short funds and 130/30 funds, according to the filing.

Arrow’s initial proposed self-indexed equity fund, dubbed the Arrow Insights Sector Momentum Index ETF, will track the Arrow Insights Sector Momentum Index.

Arrow Funds in May filed regulatory paperwork detailing plans to bring three actively managed income-generating ETFs to market, which would add to its sole fund currently on the market, the Arrow Dow Jones Global High Yield ETF (NYSEArca: GYLD). Among other firms that have recently filed for self-indexing funds, Arrow joins Cambria and RevenueShares in the race to bring their respective self-indexing ETFs into play.

Arrow cited as precedent in the filing the permission to self-index that the Securities and Exchange Commission previously granted to WisdomTree, IndexIQ and Market Vectors—the very firms that are widely considered to be the pioneers of the trend.

In recent years, the SEC has started easing the requirements for ETFs to self-index or “affiliated indexes,” as the quick permission it gave to Northern Trust’s fast-growing ETF unit, FlexShares, indicated.

That said, the most-high-profile petition requesting permission to self-index came about two years ago from iShares, and has yet to be green-lighted by regulators.

Some industry sources say the SEC’s reluctance to allow iShares to self-index may relate to the fact that regulators are concerned that granting the biggest ETF company in the world such permission could unleash vast changes in investment markets.

BlackRock’s iShares unit, after all, has more than $600 billion in U.S.-listed ETF assets.


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