Van Eck Nixes Derivatives In Active ETF Plans

October 08, 2010

Van Eck becomes the latest to rethink derivatives use in active ETFs.

Van Eck Global, the New York-based money manager known mostly for its expertise in commodities investments, submitted new paperwork with the Securities and Exchange Commission that precludes use of derivatives in any active ETFs it brings to market.

The decision affects a planned Market Vectors Active Africa ETF as well as a Market Vectors Active Short Municipal ETF, the filing said. The company already offers index-based ETFs canvassing the two corners of the investment universe, the Africa Index ETF (NYSEArca: AFK) and the Short Municipal Index ETF (NYSEArca: SMB).

Van Eck’s decision to nix derivatives use from its funds is the latest move by a fund company to address concerns about derivatives use in actively managed or leveraged funds. In March, regulators said they would look more closely at new and existing “exemptive relief” filings, such as Van Eck’s, to make sure derivatives use wouldn’t harm investors. Van Eck’s move should speed OK of its active-ETF petition.

Claymore Securities, which changed its name to Guggenheim Partners last month, also decided it wouldn’t use derivatives in ETFs it was planning. AdvisorShares, an ETF sponsor specializing in active ETFs, also said it would suspend use of derivatives in a high-yield debt ETF it has had in the works.

Exemptive relief filings grant the ETF firms exception to sections of the Investment Act of 1940 and are just the first step in the path to launching ETFs. It often takes at least six to 12 months from the date of the initial filing for a company’s first ETF to hit the market.

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