Salient Advisors, a Houston-based firm that has already signaled it wants to offer active ETFs, is asking regulators to allow it to self-index its products. Self-indexing can make funds cheaper and allow sponsors to bring them to market more quickly than ETFs with third-part indexes.
The firm, which currently manages alternative mutual funds, filed on Sept. 5 for permission to launch self-indexed equity, fixed income, 130/30 and long/short funds, taking a page out of other issuers’ playbook, such as Emerging Global Advisors, who plan to offer more niche products with greater efficiency through the use of indexes created in-house.
The firm said in the filing that its first fund will be called the Salient MLP Index ETF. In November 2011 filed for so-called exemptive relief from sections of the 1940s Investment Act to market actively managed ETFs and fund-of-funds ETFs. It said at that time its first fund would be called the Salient MLP and Energy Infrastructure ETF. It’s not immediately clear if the two funds are one in the same or are separate active and indexed versions of the same broad MLP strategy.
In a recent blog on the self-indexing trend, IndexUniverse ETF analyst Spencer Bogart wrote that: “One of the realizations of the low-cost movement is this: As retail investing in ETFs continues to gain steam, investors don’t want to pay for—and certainly don’t need—the brand-name index anymore.”
He added that: “Ultimately, ETF issuers, under never-ending cost pressure, are continually seeking more efficient ways to deliver. And as the ETF world expands rapidly, the competition in the industry is benefiting investors.”
Salient cited as precedent in its most recent filing the permission to self-index that the Securities and Exchange Commission previously granted to Pimco, Global X, and WisdomTree.
WisdomTree was one of the first to self-index its ETFs, and IndexIQ and Van Eck’s Market Vectors unit that markets ETFs are also pioneers in the self-indexing space. The trend also now involves companies such as FlexShares, which is already marketing a number of self-indexed ETFs.
The new frontier of the so-called affiliated indexing trend involves BlackRock, which filed for permission to self-index funds in August 2011.
BlackRock’s iShares unit is the biggest ETF company in the world, and some ETF industry sources reckon the SEC may be reluctant to grant the petition, as the firm’s sheer size might disrupt the world of index investing too much and too fast.
The San Francisco-based ETF sponsor now has about $593 billion in U.S.-listed ETF assets, or nearly 40 percent of the $1.499 trillion whole, according to IndexUniverse’s latest daily ETF League Table.