ETF Filing: New Firm Plans ‘Shielded Alpha’ Funds
A new firm believes it has the solution to the nontransparent actively managed ETF conundrum. Recently, Blue Tractor Group made its third amended filing for an ETF structure that would provide a bit more opacity to actively managed funds.
The “Shielded Alpha” methodology offers “substantial portfolio transparency” by using an algorithm on a daily basis to generate a random portfolio called the “Dynamic Stock Specific Risk Portfolio” that would overlap with the actual fund portfolio by 90-100%. Although the exact level of overlap would not be revealed on any given day, over time, it would average out to 95%.
Finally, weightings would be generated for the individual stocks within the dummy portfolio with the intention of minimizing tracking error between it and the real portfolio, the filing said.
An Interchangeable Portfolio
That resulting portfolio is designed to allow for the use of in-kind creation baskets, the calculation of the intraday indicative value and its use as a hedging basket by market makers. At the same time, the exact fund portfolio will not be revealed, and market participants will not be able to figure out the exact holdings, the document indicated.
“The Dynamic SSRS Portfolio will shield the alpha generating strategies of the portfolio manager of the Fund,” the filing said, noting that Blue Tractor expects the funds to trade on the secondary market at prices very close to net asset value.
Blue Tractor has already filed for an individual ETF, the Blue Tractor Large Cap Equity ETF, which will be actively managed and select its components from the S&P 500 Index. The filing did not include an expense ratio, ticker or listing exchange.
There are currently no nontransparent actively managed ETFs trading on U.S. exchanges. Eaton Vance has launched its NextShares family, but those are not quite ETFs, even if they trade on a stock exchange. And Precidian is still seeking approval to use its own proposed structure. All that said, it’s not clear how significant of an impediment transparency represents to ETF issuers, and the issue has been debated extensively.
50 Funds Leave The NYSE
Today marks the departure of 50 iShares ETFs from the NYSE Arca exchange and their relocation to new homes on the Bats and Nasdaq exchanges. The SEC will have to approve this latest amended 40-APP filing from Blue Tractor, which is not a guaranteed outcome. Bats is owned by ETF.com’s parent company, CBOE.
The 30 iShares funds moving to the Bats exchange include the following: