There are a lot of people out there who are skeptical about Eaton Vance's NextShares, including me.
The reason is simple: NextShares, which are exchange-traded-managed funds (ETMFs), are complex.
They look like exchange-traded funds … but they're not exchange-traded funds. They work like active mutual funds … but they're not active mutual funds. They trade like stocks … but they don't really trade like stocks. Before the products can come to market, brokers have to create an entirely new order type to even allow people to buy and sell them.
Why would investors go through the hassle of learning a new order type just to buy some run-of-the-mill active funds?
That's the prevailing wisdom, and it may well be right. It certainly has seeped into the news coverage of NextShares, which is decidedly nonplussed.
Consider our recent article on the newly released pricing structure for NextShares: "The fees are more expensive in some areas and cheaper to comparable ETFs. For example, the Eaton Vance Bond NextShares will charge 0.60 percent, but similarly broad-reaching bond ETFs that are actively managed but transparent—the WisdomTree Western Asset Unconstrained Bond ETF (UBND), SPDR DoubleLine Total Return Tactical ETF (TOTL) and PIMCO Total Return ETF (BOND | B)—all come with an expense ratio of 0.55 percent."
That's good analysis. How many people will buy the "complex" Eaton Vance Bond NextShares when they could buy Jeffrey Gundlach's or Mihir Worah's ETFs instead? (Both Worah and Gundlach are speaking at our forthcoming Fixed Income conference.)
But maybe we're approaching this all wrong. After all, viewed from an exclusively mutual-fund window—and specifically, viewed from the window of Eaton Vance itself—the new pricing is radical.
Remember, NextShares are designed essentially as share classes of existing mutual funds. And if you compare the fees for NextShares with mutual-fund share classes from Eaton Vance, the results are impressive:
|Fund||NextShares||A shares||C Shares||I Shares|
|Floating Rate & High Income Fund||0.75%||1.10%||1.85%||0.85%|
|Global Dividend Income Fund||0.90%||1.24%||1.99%||0.99%|
|Global Macro Absolute Return Fund||0.70%||1.05%||1.75%||0.75%|
|High Income Opportunities||0.60%||0.89%||1.64%||0.64%|
|Large Cap Value||0.70%||1.01%||1.76%||0.76%|
|Richard Bernstein All Asset Strategy||1.07%||1.40%||2.15%||1.16%|
|Richard Bernstein Equity Strategy||0.95%||1.26%||2.01%||1.01%|
|Parametric Emerging Markets||1.05%||1.36%||2.11%||1.11%|
|Parametric International Equity||0.60%||0.90%||N/A||0.65%|