Gabelli Asset Management Company (GAMCO) Investors has entered into a license agreement with Precidian Investments to support the launch by GAMCO of a family of ActiveShares actively-managed, semi-transparent ETFs.
Mario J. Gabelli, Chairman and CEO of GAMCO.
The Precidian model, which is still subject to regulatory approval from the SEC, allows ETF issuers to deliver actively-managed investment strategies in an ETF vehicle without disclosing holdings on a daily basis.
While most passive and active ETFs today require daily portfolio disclosure, which exposes active managers’ investment ideas to other investors, the ActiveShares approach masks an ETF’s holdings by inserting a blind trust, known as a ‘confidential account’, between the fund and its authorized participants.
“The ActiveShares structure gives [GAMCO] access to a new set of investors as the actively-managed ETF market grows,” said Mario J. Gabelli, Chairman and CEO of GAMCO. “Our agreement with Precidian adds another tax-efficient structure for delivery of our strategies.”
“We are honored to work with GAMCO Investors to provide an innovative investment solution in the form of an actively-managed, periodically-disclosed ETF,” added Dan McCabe, CEO of Precidian. “The ActiveShares ETF structure not only provides clients with expanded vehicle options, but it also protects the integrity of the underlying portfolio serving the best interest of the investor.”
GAMCO joins JP Morgan, Blackrock, Capital Research, ClearBridge, Royce and Nationwide in licensing Precidian’s ActiveShares structure. The firm has approximately $41 billion in assets under management through private advisory accounts and open-end and closed-end funds (as of 30 June 2017).
Precidian is not the first to design a hybrid ETF vehicle which would appeal to active managers. Eaton VanceCorp launched their first exchange-traded mutual fund, dubbed NextShares, in February 2016. Similar to mutual funds, the vehicle protects the manager’s proprietary research in a bid to obtain benchmark-beating returns but also enjoys intraday trading as all trades are finalised at day’s end with prices reflecting the fund’s Net Asset Value plus or minus a trading cost (premium/discount) that was established at the time the trade was executed. This intraday tradability allows the fund to maintain significant cost and tax advantages.
Despite the buzz surrounding NextShares prior to its launch, the structure has not managed to revolutionise the actively managed ETF space, with passive ETFs still representing approximately 99% of the ETF industry’s $4.1 trillion in total assets under management. Concerns over the visibility of an active manager’s positions remain a top issue with over three quarters of current active ETFs dedicated to fixed income exposures which are harder to replicate.