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Rating:Eaton Vance Launches an ETF Subsidiary Not Rated 0.0 Email Routing List Email & Route  Print Print
Thursday, October 13, 2011

Eaton Vance Launches an ETF Subsidiary

Reported by Hung Tran

Eaton Vance Corp.[see profile] has launched a wholly owned subsidiary, Navigate Fund Solutions LLC, to develop exchange-traded managed funds, which are hybrids of ETFs and traditional actively managed mutual funds.

Eaton Vance has also appointed Stephen Clarke as president of the new subsidiary, responsible for managing the development and marketing of ETMFs and NAV-based trading. Before joining the Eaton Vance organization, Mr. Clarke was a Senior Vice President of Old Mutual Asset Management responsible for overseeing a portfolio of institutional and alternative investment management affiliates for over 10 years. The company said its subsidiary is "in the process of pursuing U.S. regulatory approval of ETMFs and NAV-based trading, the timing and likelihood of which is uncertain".

"ETMFs have the potential to transform the $7 trillion actively managed mutual fund market in the U.S.," stated Thomas E. Faust Jr., chairman and chief executive officer of Eaton Vance Corp. "By lowering fund operating costs and enhancing shareholder returns and tax efficiency, they level the playing field between active and passive strategies and provide enormous potential benefits to fund investors,"
Eaton Vance Corp. (NYSE: EV) today announced the formation of a wholly owned subsidiary, Navigate Fund Solutions LLC, to commercialize net asset value (NAV)-based trading of exchange-traded funds (ETFs) and develop exchange-traded managed funds (ETMFs). ETMFs are a proposed new type of registered investment fund that seek to combine features and benefits of ETFs and traditional actively managed mutual funds. Navigate is the successor to Managed ETFs LLC, a developer of intellectual property in the field of ETFs that Eaton Vance acquired in November 2010.

Eaton Vance also announced the appointment of Stephen W. Clarke as President of Navigate Fund Solutions. As President, Mr. Clarke will be responsible for leading and managing the development and marketing of ETMFs and NAV-based trading. ETMFs seek to provide the shareholder protections and operating efficiencies offered by the ETF structure to active investment strategies, while maintaining the confidentiality of portfolio trading information. ETMFs eliminate the need for portfolio transparency to achieve tight trading markets in fund shares by utilizing NAV-based trading. In NAV-based trading, fund shares are purchased and sold on an exchange throughout the trading day at market-determined spreads to the fund's ending NAV on that day. While novel in the ETF market, basing fund transaction prices on end-of-day NAVs has been the standard in the mutual fund industry for decades.

Applied to conventional ETFs, NAV-based trading can improve the efficiency of trade executions and significantly enhance trading cost transparency. NAV-based trading provides ETF market makers with a simpler and more reliable arbitrage profit opportunity than available in conventional intraday ETF trading, which should translate into tighter bid-ask spreads and narrower premiums or discounts of market prices to underlying fund asset values. Investors can know and control their cost of trade execution in the NAV-based marketplace with a precision that cannot be achieved in conventional ETF trading. The benefits of NAV-based trading can be particularly pronounced for investors in the large and growing universe of non-benchmark index ETFs that trade in low volumes.

ETMFs are actively managed exchange-traded funds utilizing NAV-based trading. Like most conventional ETFs, ETMFs will create and redeem shares in aggregation units primarily through the delivery of portfolio securities. Different from today's fully transparent active ETFs, ETMFs will not disclose the identity of fund holdings that are subject to current trading activity, thereby protecting against potential front-running of fund transactions. Compared to conventional actively managed mutual funds, ETMFs offer the promise of consistently lower expenses and consistently improved performance and tax efficiency. By addressing the conflicts between less active and more active fund investors, larger and smaller holders, and taxable and non-taxable accounts inherent to the mutual fund structure, ETMFs can provide improved shareholder outcomes across a broad range of investment strategies and fund types.

Navigate Fund Solutions is in the process of pursuing U.S. regulatory approval of ETMFs and NAV-based trading, the timing and likelihood of which is uncertain. Following approval, Navigate intends to pursue a two-part commercialization strategy: first, launching a family of Eaton Vance-sponsored ETMFs that mirror existing mutual funds and, second, licensing the associated intellectual property to other fund groups. "ETMFs have the potential to transform the $7 trillion actively managed mutual fund market in the U.S. By lowering fund operating costs and enhancing shareholder returns and tax efficiency, they level the playing field between active and passive strategies and provide enormous potential benefits to fund investors," said Thomas E. Faust Jr., chairman and chief executive officer of Eaton Vance Corp. "I am confident that, under the leadership of Stephen Clarke, Navigate Fund Solutions can realize the exciting potential of ETMFs and NAV-based trading."

Before joining the Eaton Vance organization, Mr. Clarke was a Senior Vice President of Old Mutual Asset Management responsible for overseeing a portfolio of institutional and alternative investment management affiliates for over 10 years. He previously served as marketing manager at United Asset Management, prior to its acquisition by Old Mutual. Earlier in his career, Mr. Clarke held assurance consulting, business development and client service positions at Coopers & Lybrand, the Berkshire Companies and Putnam Investments. He is a graduate of the University of Massachusetts and holds an M.B.A. from the Wharton School at the University of Pennsylvania.

Eaton Vance Corp. is one of the oldest investment management firms in the United States, with a history dating to 1924. Eaton Vance and its affiliates managed $177.8 billion in assets as of September 30, 2011, offering individuals and institutions a broad array of investment strategies and wealth management solutions. The Company's long record of providing exemplary service and attractive returns through a variety of market conditions has made Eaton Vance the investment manager of choice for many of today's most discerning investors. For more information about Eaton Vance, visit www.eatonvance.com. 

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