In an attempt to prevent front running in actively managed exchange traded fund strategies, State Street Global Advisors filed with the Securities and Exchange Commission to launch active funds under a “blind trust.”
According to a filing, SSgA is planning three active ETFs under the new blind trust format: the SPDR SSgA Equity ETF, SPDR SSgA Emerging Markets ETF and SPDR SSgA Aggregate Bond ETF. [Growing Interest for Actively Managed ETFs: SEI Report]
“This operating procedure is being proposed because it will allow the funds to use proprietary investment strategies and techniques which the advisor has developed whose value to the advisor and shareholders would be compromised if the funds’ portfolio holdings were disclosed on a daily basis,” according to the filing, Ignites reports.
The equity ETF will include assets from the Russell 3000. The emerging markets ETF will include companies based in or substantially involved in the emerging markets. The aggregate bond ETF will invest in debt instruments, with the majority of assets drawn from the Barclays Capital U.S. Aggregate Bond Index.
The exemptive relief filing is similar to other actively managed ETF filings, with four exceptions:
- The funds will not disclose holdings and trading activity, except in accordance with disclosure requirements.
- Regarding redemptions of Creation Units, “in kind” transactions will be effected through a blind trust for the benefit of the redeeming Authorized Participant and the blind trust will liquidate the portfolio securities without disclosing the identity of such securities to the Authorized Participant – APs redeem and create shares to keep the ETF’s price close to its net asset values.
- A fund’s shares will be redeemable to the fund for a limited period following certain circumstances.
- The funds come with a a Dividend Reinvestment Program.
In essence, the blind trust will withhold daily disclosures and prevent front runners – people who try to buy shares just before the fund makes its own allocations.
Eaton Vance earlier this year came up with the exchange traded managed funds as an alternative to traditional active ETFs. The ETMFs come with low-cost attributes that ETFs enjoy, but unlike ETFs, ETMFs are designed to disclose their holdings in full at least once quarter with a lag of not more than 60 days and will trade at prices based on the net asset value at the market close each day. [ETMFs Could Change the Fund Industry]
For more information on active ETFs, visit our actively managed ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
- exchange traded fund