Eaton Vance Receives SEC Green Light for Active ETFs

by: Shishir Nigam

Eaton Vance has become the latest major fund company to be granted exemptive relief by the SEC for the launch of actively-managed ETFs. Eaton Vance had first filed an application with the SEC on March 5, 2010. It requested exemptive relief from certain sections of the Investment Company Act of 1940, a necessary step for firms planning to launch active ETFs in the U.S. The filed order was dated March 30, 2011.

It appears that several firms with long outstanding applications for the launch of active ETFs are now starting to see some progress from the SEC on that front, with BlackRock iShares also receiving the all-clear as reported last week. Eaton Vance had proposed the launch of five actively-managed ETFs in its initial application:

1. Eaton Vance Enhanced Short Maturity: Seeks maximum current income by investing at least 65% of assets in US$ investment-grade debt.

2. Eaton Vance Government Limited Maturity: Seeks maximum current income by investing at least 80% of its assets in bonds issued or guaranteed by the US government or its agencies.

3. Eaton Vance Intermediate Municipal Bond: Seeks tax-exempt income by investing at least 80% of its assets in U.S. bonds exempt from federal taxes.

4. Eaton Vance Prime Limited Maturity: Seeks maximum current income by investing at least 65% of its assets in U.S. investment grade securities.

5. Eaton Vance Short Term Municipal Bond: Seeks tax-exempt income by investing 80% of its assets in short-term bonds exempt from federal taxes.

These five funds, if launched, will challenge PIMCO’s successful line-up of active bond ETFs directly, as the strategies and even the names of the funds match PIMCO’s offerings quite closely. Eaton Vance is a giant in the closed-end fund space, managing in excess of $163 billion as of Dec. 31, 2009, $42.7 billion of which was in fixed-income investments. The firm had first announced its interest in the ETF industry back in Aug 2008.

Eaton Vance had also made the news in Nov 2010, as it made a move to acquire the assets of Managed ETFs LLC. Managed ETFs LLC was a firm co-founded by Gary Gastineau, who has been behind the formulation of “NAV-based trading” – a trading mechanism for ETFs that could allow actively-managed ETFs to maintain portfolio confidentiality, a solution considered the “holy grail” for Active ETFs. Managed ETFs owned the patents for the NAV-based trading mechanism and Eaton Vance CEO, Thomas Faust, made it clear that the motivation behind the acquisition was to eventually aim to bring non-transparent active ETFs to the market place.

The five proposed funds that were part of the relief application though are fully transparent funds and will provide daily disclosure of their holdings, with a 1-day lag, as with all other active ETFs on the market.

Disclosure: No positions in above-mentioned names.

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