Fidelity Submits Proposal to Retrofit Closed-End Funds as ETFs

Active fund managers have proposed a number of techniques to meet the pricing information requirements without giving away their holdings, but so far the SEC has only approved one such application, from Eaton Vance Corp.

Closed-end funds sell their shares through an initial public offering. The shares then trade in the secondary market, often at a sharp discount to the net asset value of the fund’s underlying holdings.

Fidelity would offer what it calls exchange-traded active funds. It would hold weekly tender offers in which it would offer to buy back the shares of these funds at net asset value, hopefully eliminating the discounts that have bedeviled closed-end funds.

Fidelity would also employ what the firm calls tracking baskets to give traders enough pricing information to make markets for the funds during the day and to create and redeem shares with the fund itself. The Fidelity funds would post information on their holdings on a monthly basis.