The Year Ahead: The ETP Industry In 2014

Includes: AB, BLK, EV, FII, TROW
by: James Simpson

Here are some of the things I'm looking forward to seeing in 2014 from the always exciting, and innovative, exchange-traded products industry.

Will Van Eck receive exemptive relief for separate share class ETFs?

A must watch ETF exemptive relief application (SEC File No. 812-14010) filed by Van Eck Associates in 2012 requests that they be allowed to offer conventional mutual fund shares together with ETF shares. The ETF shares and mutual fund shares would each represent interests in the same portfolio of assets. The relief requested is similar to that granted to The Vanguard Group in the year 2000. Vanguard patented the concept and is the only advisor to launch an ETF shares class of a conventional mutual fund in the past 13 years. Will the SEC grant an approval order in 2014? Will Van Eck license Vanguard's IP, or develop an alternative? Will lawsuits be filed? This will be a fun one to watch.

Will 2014 see ETFs from large conventional mutual fund companies?

In the past few years, a slew of the world's largest mutual fund companies requested the ability to issue ETFs. And, after a logjam at the SEC, exemptive orders began flying out of the Commission in 2013. Yet, we're still waiting on many of them to actually launch a product. Will 2014 be the year that we see ETF launches from AllianceBernstein L.P. (NYSE:AB), Federated Investment Management Company (NYSE:FII), John Hancock Advisors, LLC, Neuberger Berman Management LLC, T. Rowe Price Associates, Inc (NASDAQ:TROW), and others?

Will we see an exemptive relief application from BlackRock in 2014?

The iShares product development team was always at the forefront of ETF innovation. But, it's been nearly two years since BlackRock (NYSE:BLK) filed any exemptive relief application related to ETFs. While other ETF advisors are working on exemptions for self-indexing, actively-managed ETFs with limited disclosure, or derivatives usage, BlackRock seems content with what they've got. I would not expect another year to pass without seeing the industry leader get back to shaping the game.

Will 2014 see the listing of the Market Vectors Kuwait Index ETF?

The preliminary prospectus for the Market Vectors Kuwait Index ETF was first filed with the U.S. Securities & Exchange Commission way back in 2008. Since then Van Eck Associates, the fund's advisor, has delayed the launch by 30 days for over five years. Perhaps 2014 will be the year that this ETF finally gets to ring the opening bell, and Stuart Strauss can take a break from filing those 485BXT forms?

Will 2014 be the birth year of the Exchange-Traded Managed Fund?

Last March Eaton Vance (NYSE:EV) requested exemptive relief to create a new type of exchange-traded product called an "Exchange-Traded Managed Fund" or "ETMF." This filing seemed pretty straightforward from a '40 Act perspective. Eaton Vance wants to run an active ETF without daily disclosure of the portfolio holdings. But, from a trading and markets perspective, it is extremely complex, requiring market makers to create new quoting systems, exchanges to create new order types, and I'm still not certain how the Consolidate Tape Association is going to handle quotes or, time and sales information. Not to mention investor confusion. If investors, or broker/dealers for that matter, can't distinguish between an index fund share, a commodity-based trust shares, and a portfolio depositary receipt, adding another security type to this already confusing alphabet soup will leave a lot of people wondering, "How often are my fund's holdings updated?" Seems like a lot of work for an open-end closed-end fund. But, it will be one of the things I'm looking forward to following in 2014, 2015, and possibly 2016.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.