With a few rare exceptions, the mutual fund industry has not participated or benefited from the trillion-dollar rise in ETF investing. But that could soon change. A new type of exchange-traded product that’s been dubbed the “ETMF,” or exchange-traded managed fund, has been introduced.
The Eaton Vance Stock NextShares (EVSTC) was launched on the NASDAQ February 26 and invests primarily in growth stocks selected by portfolio manager Charles Gaffney. Its underlying portfolio is also available as an Eaton Vance mutual fund with Class A, C, and I shares (EAERX, ECERX and EIERX).
Fund companies like Eaton Vance are hoping this new breed of exchange-traded vehicle will gain popularity with financial advisors and investors. It’s a hybrid investment, combining certain characteristics of a mutual fund and of an ETF but not exactly like either.
For example, unlike a traditional active or index ETF, the NextShares fund does not reveal its daily holdings in order to preserve confidentiality of the manager’s trades; it discloses them quarterly, like mutual funds do.
And like an ETF — and unlike a mutual fund — the NextShares fund is tax-efficient. It doesn’t have to sell assets for cash when an investor sells shares, which could incur capital gains that have to be distributed to all fund investors. When a NextShares investor sells shares, he simply sells them to another investor, like a stock transaction, and the fund incurs no capital gains.
Trading prices for NextShares are available intraday through Folio Investing and Folio Institutional using the fund’s NAV to determine the price. For example, a price marked as “NAV +$0.01″ means that day’s closing NAV plus one cent. According to NextShares Website, “Representing prices in this manner makes it clear that bids, offers and execution prices for NextShares are based on NAV, and that the final price of executed trades is determined when NAV is computed.”
“Our initial NextShares will offer investors access to established fund strategies in a new structure with significant potential investor benefits,” said Thomas E. Faust Jr., Chairman and Chief Executive Officer of Eaton Vance. “The Fund’s introduction provides the first opportunity to demonstrate the performance, tax efficiency and trading characteristics of NextShares.”