New Fund Structure Akin To An ETF Incubator

February 02, 2017

ETF.com: And is it on an exchange, and how would I buy it?

Magoon: Initially there'll be two ways. You can look at the CUSIP; it'll have a CUSIP. There also will be—and this is an initiative we're working on as well—a three- or four-letter ticker you'll be able to pull up and see pricing.

Unlike an ETF, while it's an incubator, it’ll have end-of-day pricing. That'll be similar to a traditional UIT or a mutual fund. You put an order in and you buy at the end-of-day close while it's an ETF incubator. That's probably the biggest difference.

But as you know, the trading of ETFs—especially new ETFs—causes a lot of consternation in the markets. Not everyone likes that. Not everyone likes or needs the ability to have intraday liquidity. We don't think that's a key feature. We think having the index-tracking ability, being tax efficient, having a transparent portfolio is the big essence. And we'll have that.

ETF.com: So you’ll do the creation/redemption, or how will orders work?

Magoon: A UIT has a trustee that supervises and manages the ETF. Orders will go through them, and they'll create more shares as orders come in at the end of the day. There isn't actually a creation/redemption process while it's a UIT. It's actually simply building or selling units based on demand. Once it converts into a traditional ETF, everything is similar to what we know and love.

ETF.com: So you buy it and then you want to sell it. So then Amplify buys it back? Or is it like a mutual fund?

Magoon: We're going to work with existing UIT companies that have the ability to sponsor. In our first filing, we’re working with Elkhorn. Someone will place an order to buy or sell that Elkhorn-sponsored UIT, and then the transaction will happen through Elkhorn and the trustee, which is Bank of New York.

ETF.com: Has there been any other product like this before?

Magoon: No, there hasn't.

ETF.com: How do you get an advisor to buy this, since it's such an unusual and different structure?

Magoon: In total, there hasn't been a product like this before, but at the front end, there are products like this. There are index-based UITs and there are obviously traditional ETFs.

So it's really trying to get the advisor to buy the process. We don't think it'll be that difficult, because for somebody who's buying traditional UITs, this will look and act, smell, feel like a traditional UIT, except it won't have a static portfolio; it'll rebalance with the index. For somebody who buys an ETF, this will be a little bit different because it won't be trading intraday. But it'll still have all the characteristics of an ETF.

 

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