As a tweak to the trend, Eaton Vance wants to be an industry leader in non-transparent, actively managed municipal exchange-traded funds.
It is currently in talks with the Securities and Exchange Commission to gain permission to develop and one day offer some of these products.
Eaton Vance calls the product an ETMF, or an exchange-traded managed fund, said Tom Metzold, a co-director of municipal investments at the firm. It’s based on a patent the firm received that would, if permitted, offer investors
ETMFs will trade on an exchange at a market-set premium or discount to the fund’s closing net-asset value. Because trading will occur at premiums or discounts to the closing NAV, market makers won’t have intraday exposure to hedge and subsequently, no associated requirement for full portfolio transparency to facilitate hedging.
What’s the advantages of that? “You could avoid the Street front-running you,” Metzold said, “or creating a situation where there is a limited supply of specific Cusips, creating a short squeeze, or some sort of situation.”
ETMFs expect to offer the cost and tax efficiencies of the ETF structure. The non-transparency aspect should appeal to a large swath of actively-managed investment portfolios — including municipal bonds — where managers have concerns about fully transparent ETF structures.
If the SEC grants permission, Eaton Vance can file for exemptive relief to offer ETMFs.
