Legg Mason Plans Index ETFs Too

August 22, 2012

Legg Mason adds to its exchange-traded fund plans with a move to market index ETFs.

Legg Mason, the Baltimore-based mutual fund company that already has plans to market active ETFs, filed new regulatory paperwork to gain permission to also offer a variety of index ETFs, including equity and fixed income funds.

The “exemptive relief” petition seeks permission to offer domestic and global fixed income as well as equity securities including funds-of-funds that could use other ETFs as underlying securities.

The first fund it is planning is tentatively called the Legg Mason Global Income ETF, a dividend-focused developed-markets equity fund that will be tied to the price and yield of the Global Income Index, according to the filing.

Legg Mason is one of many storied mutual fund firms to file for permission to market ETFs. It first filed to offer active ETFs early in 2010 and said late last year that its first active fund would be called the Legg Mason Western Asset Ultra-Short Duration ETF. That would make its first active fund quite like the popular Pimco Enhanced Short Maturity Strategy Fund (NYSEArca: MINT).

Regarding the Legg Mason Global Income ETF, the filing said the index consists of securities that have both high and sustainable yields as determined by a proprietary methodology that incorporates the following factors, each of which are equally weighted: dividend yield; dividend payment history; and dividend sustainability—the latter factor measured in part by free cash flow and payout ratios.

The universe of equity securities from which index constituents will be selected will consist of the top 85 percent of market capitalization of equity securities within the global developed market universe, the company said.

Securities in the index will be ranked and adjusted to balance the index’s exposure to individual regions and sectors. The weightings of the securities in the index will correspond to their relative ranking, and the index will consist of about 400 to 600 securities and will be rebalanced monthly, the filing also said.

Exemptive relief filings, such as the one Legg Mason submitted to the Securities and Exchange Commission on Aug. 20, grant exemptions to parts of the Investment Act of 1940, and represent the first hurdle fund companies must clear to issue ETFs. It can take anywhere from six months to more than a year for an initial fund to launch following the filing of an exemptive relief filing.


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