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Friday, March 06, 2015

Faust Ponders Five Bps of $10T

News summary by MFWire's editors

Five basis points of $10 trillion. That's the dream of Eaton Vance's [profile] ETF-like alternative product structure for active managers.

The Boston-based mutual fund shop's Navigate Fund Solutions arm has already won over three other fund shops -- American Beacon, Gamco, and the Hartford -- to license Eaton Vance's exchange-traded managed funds structure, branded NextShares. And now Tom Faust seems to have won over the New York Times, and maybe Morningstar, too.

Landon Thomas Jr. of the Times interviews the Eaton Vance CEO about the fund firm's innovation, which was recently blessed by the SEC. Eaton Vance charges those who license the ETMF structure five basis points, and Faust notes that five bps of the $10 trillion in active mutual funds is $5 billion, roughly equal with Eaton Vance's current market capitalization ($4.98 billion as of market close on Thursday). As of January 31, Eaton Vance had $295.7 billion in assets under management.

Meanwhile, M*'s Scott Cooley (director of policy research) also ponders ETMFs, digging deeper into the ideas behind the new structure. He comes down as "cautiously optimistic that exchange-traded managed funds will ultimately [emphasis included in the original] attract meaningful assets." He posits that ETMFs "may give active managers more of a fighting chance in their competition with passive strategies.

Like traditional ETFs, ETMFs can be tax-friendlier and meant to help keep costs down. Yet ETMFs don't involve daily disclosures of holdings, an appealing change for active PMs worried about front-running. And while investors can pay a slight premium or receive a slightly discounted price to buy or sell the ETMFs throughout the day, the funds will technically trade once per day.

"We are changing the social contract with mutual fund investors," Faust tells the Times. "If the industry does not do this, a lot of people will be out of jobs." 

Edited by: Neil Anderson, Managing Editor

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