In Fierce Battle Over Active ETFs, Nationwide Is on All Sides

Nationwide may start its own passive ETFs

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(Bloomberg) — Nationwide Mutual Insurance Co. is hedging its bets when it comes to turning its investment strategies into exchange-traded funds.

The Columbus, Ohio-based insurance and financial services company, best known for the slogan ‘‘Nationwide is on your side,’’ has decided not to pick sides in one of the fiercest battles in asset management: the fight for the billions fleeing mutual funds for ETFs.

(Related: Nontransparent ETFs Could Be Game Changer for Fund Market)

The firm’s fund business is in talks with Precidian Investments to license a type of active ETF that would keep its holdings hidden, Precidian announced Thursday. That came a week after Nationwide sought regulatory permission to launch a fund using a rival structure from Eaton Vance Corp. Nationwide is also considering starting its own passive ETFs.

“With much uncertainty and speculation in the industry at this point, Nationwide is keeping its options open,” Mike Spangler, president of Nationwide Funds, said by email. “Index-tracking and active strategies help us meet the needs of different investors. Like many in the industry, we believe they can both play a role in a diversified portfolio for any investor.”

Rival Solutions

Nationwide’s three-pronged approach to the ETF business shows how much is at stake. The company’s tilting for a slice of an almost $3 trillion industry, and for some of about $10 trillion currently invested in actively managed mutual funds. While mutual funds have lost their luster in recent years, ETFs are booming.

Active strategies, however, account for about 1% of ETF assets. That’s because many managers have balked at the daily disclosure demanded of these funds, fearing this would reveal their “secret sauce.”

That’s where Eaton Vance and Precidian come in. The two have competing structures for packaging active strategies into ETFs that disclose their full holdings just a few times a year.

Eaton Vance has secured regulatory approval from the Securities and Exchange Commission. But Precidian, which has been trying to get its blueprint signed off since 2013, has yet to get the final nod.

‘Deserve A Shot’

“By talking to Precidian, it shows that they believe in our structure,” said Daniel McCabe, Precidian’s chief executive officer.

Robyn Tice, a spokeswoman for Eaton Vance’s NextShares Solutions LLC unit, which markets the funds, confirmed Nationwide had filed to start a NextShares fund and for permission to offer further NextShares funds in the future. She declined to comment further on Nationwide’s strategy.

Funds using the Eaton Vance model have about $82 million under management. Precidian filed an initial registration statement for eight funds, sub-advised by two affiliates of Legg Mason Inc., in April. BlackRock Inc. and JPMorgan Asset Management also plan to use Precidian’s structure, according to the company’s press release.

“They deserve a shot to work,” Stacy Fuller, a partner at K&L Gates LLP, said of some of the companies seeking SEC approval for active non-transparent ETFs at an industry conference in New York last week. “There is going to be a big push this year from active managers to get some innovation from the SEC.”

--- Read Fiduciary Rule Confusion Hangs Over S&P Conference Life Sessions on ThinkAdvisor.

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