ETF Focus | Published in March 2017

ETMFs: A New Option

Strategic Insight’s quarterly exchange-traded fund analysis

By Matt Cirillo | March 2017

As managers of active mutual funds look to hold their ground in the battle against passive rivals, product innovation will likely be a factor in remaining competitive. With passive mutual fund and exchange-traded fund (ETF) managers in a race to the bottom with fees consistently in the single digits, active managers cannot compete on fees alone. The introduction of lower-cost packaging options may allow for a narrowing of this gap.
One innovation is the exchange-traded managed fund (ETMF), introduced early last year under the NextShares brand name. Put simply, these products are structurally a hybrid of mutual funds and ETFs; they combine the protection of confidential portfolio and trading information—holdings are released monthly or quarterly like mutual funds—with the cost and tax efficiencies associated with trading on an exchange.
Thus far, only seven ETMFs have been introduced: three by Eaton Vance, three by Ivy Investments and one by Gabelli Funds. The funds had combined assets of $96 million as of the end of this January. With such limited track records and such a small universe, it remains to be seen how ETMFs will stack up against their mutual fund and ETF counterparts in terms of both fees and performance.