Eaton Vance Acquires Gastineau ETF Firm

Eaton Vance, the Boston-based firm known largely for its lineup of closed-end funds, acquired Managed ETFs LLC, a firm co-founded by longtime exchange-traded fund industry figure Gary Gastineau that owns a number of patents that could help Eaton Vance break into ETFs. Terms weren't disclosed.

The patents could provide the foundation for Eaton Vance for more efficient trading of both index-based and "nontransparent" actively managed ETFs, Eaton Vance said today in a press release. The fund company, like many others, began laying the groundwork to offer actively managed ETFs. We wrote about its plans in a story in March titled "Eaton Vance Files To Enter ETF Market."

"Facilitating more robust ETF trading and expanding the scope of the ETF market to encompass nontransparent, active strategies is a vision we share with the principals of Managed ETFs," Eaton Vance Chief Executive Officer Thomas Faust said in the press release.

The issue of being able to offer nontransparent active ETFs is a central concern of some of the actively managed mutual fund firms that have begun the regulatory process to be able to offer ETFs. They appear to want to get into the growing ETF market, while preserving one of the cornerstones of active management, namely not having to disclose portfolio holdings daily as ETFs must.

iShares, the world's biggest ETF company, parted ways with such companies last week, saying in an updated regulatory filing that any actively managed ETFs it rolls out would be transparent.

Gastineau, who founded Managed ETFs with Todd Broms, remains the principal at a separate firm, ETF Consultants LLC, that's based in New Jersey. It provides ETF consulting services to issuers, exchanges and other markets, market makers, research organizations and investors.

A Place For Nontransparent Active ETFs

Gastineau told he takes the rapid expansion of the ETF industry seriously, and that, moreover, many mutual fund companies that specialize in active management also recognize that big changes are happening and that they will have to adapt to them. The first ETF was launched in 1993, and now almost $1 trillion is in more than 1,000 ETFs.

"What you see here is that there is going to be a very dramatic change, and you can either lead the charge or be buried under it," Gastineau said in a late-summer telephone interview. "If someone is going to cannibalize your business, it may as well be you."

"Most people I talk to are clearly looking forward to this. It's clearly the next big thing. They recognize the superiority of the ETF vehicle, and they need to find a way, I guess you would say, to get with it," he added.

Gastineau was also emphatic that many firms aren't pleased with the limited function that active ETFs have, and are looking for ways to address those perceived shortcomings.

"Active management is a very superior way to go," he noted, adding that the key to doing nontransparent ETFs is using so-called NAV-based trading. NAV-based trading allows managers of nontransparent funds to trade securities throughout the day at prices determined at or relative to net asset values calculated on that day.

"If market markers don't have to make markets at intraday prices, they can plan their market making based on their inventory," Gastineau said.

"They can create or redeem-you have to give them information on what the costs to create or redeem are-and that you can do. But you don't have to give them any information on the composition of the portfolio other than what would be delivered today in a typical mutual fund," he explained.

He said mutual funds have to report their holdings quarterly, with a 60-day lag, adding that most now report more frequently than that.

Eaton Vance ETF Filing

In its SEC filing back in March, Eaton Vance outlined plans for five actively managed ETFs focused on investment-grade U.S. debt. The funds are:

  • Eaton Vance Enhanced Short Maturity ETF
  • Eaton Vance Government Limited Maturity ETF
  • Eaton Vance Intermediate Municipal Bond ETF
  • Eaton Vance Prime Limited Maturity ETF
  • Eaton Vance Short Term Municipal Bond ETF

The company didn't name ticker symbols or expense ratios in the filing.

Eaton Vance is one of many reputable mutual fund firms that have filed for "exemptive relief" to offer actively managed ETFs, most recently New York-based Neuberger Berman, as we covered in a story on Nov. 19. Some of the other firms include Legg Mason, Dreyfus, Allied Bernstein and T. Rowe Price. Wall Street investment banks have also lined up, including J.P. Morgan and Goldman Sachs.

Total assets in U.S. ETFs stood at almost $960 billion as of Nov. 19, though only a tiny fraction of the money has been invested in active ETFs. One of the most successful active ETFs to date is the Pimco Enhanced Short Maturity ETF (NYSEArca:MINT), a money market fund proxy that had gathered $455.8 million as of last Friday, according to data compiled by

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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