February 20, 2019 / 9:35 PM / 4 months ago

Eaton Vance plans second attempt to reinvent ETFs

NEW YORK (Reuters) - Eaton Vance Corp said on Wednesday it plans to launch a new kind of exchange-traded fund (ETF) that would keep its investments secret, marking its second effort to thwart or at least profit from the trend away from higher-cost mutual funds.

The Boston-based fund manager is seeking U.S. Securities and Exchange Commission (SEC) permission to build a new type of ETF that would keep trades private, it said in a statement.

Most ETFs, which hold a basket of stocks, bonds or other investments, are required to disclose their holdings, discouraging “active” managers who want their trades to be private from offering such funds. Many ETFs track an index and have become a lower-cost alternative to funds that aim to beat the market.

Index funds have been stealing investors away from actively managed funds in part because they charge a lower fee. ETFs also hold certain tax advantages over mutual funds, which must disclose their current holdings, and ETF shares trade like common stock on an exchange.

In 2016, Eaton Vance launched NextShares, a hybrid between mutual funds and ETFs, which are not required to disclose their investments every day, unlike most ETFs. But Chief Executive Tom Faust said the product, which requires brokers to upgrade their technology to accommodate a different trading method, has struggled to find distributors.

The latest product structure, called Clearhedge and developed by Faust five years ago and patented last year, would trade like a stock and not require brokers to upgrade their technology.

It could be licensed to both active managers and index funds that hold stocks or bonds that trade infrequently during U.S. market hours and want to improve their performance, Faust said in an interview.

Similar proposals, including some backed by BlackRock, T. Rowe Price Group and Fidelity Investments, are still awaiting SEC approval years after their submission. Regulators have expressed concern about whether the funds would function properly without the transparency of typical ETFs.

Reporting by Trevor Hunnicutt; Editing by Richard Chang

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