Indeed, people such as Gastineau are focused on alternative ways to achieve nontransparency.
“Active management is a very superior way to go,” Gastineau told IndexUniverse in an interview last year.
He stressed that the key to doing nontransparent ETFs is using so-called NAV-based trading. NAV-based trading allows managers of nontransparent funds to trade securities throughout the day at prices determined at or relative to net asset values calculated on that day.
“If market makers don’t have to make markets at intraday prices, they can plan their market making based on their inventory,” Gastineau said.
“They can create or redeem—you have to give them information on what the costs to create or redeem are—and that you can do. But you don’t have to give them any information on the composition of the portfolio other than what would be delivered today in a typical mutual fund,” he explained.
Fixed Income Comes First
In its initial exemptive relief filing in March 2010, Eaton Vance outlined plans for five actively managed ETFs focused on investment-grade U.S. debt. The funds are:
- Eaton Vance Enhanced Short Maturity ETF
- Eaton Vance Government Limited Maturity ETF
- Eaton Vance Intermediate Municipal Bond ETF
- Eaton Vance Prime Limited Maturity ETF
- Eaton Vance Short Term Municipal Bond ETF
It’s fitting that Eaton Vance is looking to fixed income as the first frontier, because many ETF industry sources are all but convinced that that’s a pocket of the fund industry where index funds already actually look like they’re active.
That’s because most bond indexes are vast and full of illiquid securities, forcing fund managers to sample portions of the indexes in so-called optimized strategies. Those choices don’t seem so different than an active manager’s picking of securities—even when those “passive” filters are packaged as part of a rules-based indexing methodology.
In a related vein, the most successful active ETF—which isn’t nontransparent—is a fixed-income security, the Pimco Enhanced Short Maturity Strategy ETF (NYSEArca: MINT). MINT is a money market fund proxy that had gathered $1.2 billion as of April 4, according to data compiled by IndexUniverse.
Tice declined to be precise about Eaton Vance’s next moves.
“Our product plans are still in development, so I couldn’t tell you in any detail today about the strategies we plan to bring to the market or when they’ll be available.”