NextShares’ New Product Combines Active Management With ETFs

Ted

FYI: (This is a follow-up article)
The mutual fund industry’s latest attempt to deal with the rising threat of the exchange traded fund comes from Eaton Vance (EV).

On Friday, the Boston fund giant’s subsidiary, NextShares, launched a brand new structured product called an exchange traded managed fund, or ETMF, a hybrid that combines what some consider the best parts of the actively managed mutual fund with an ETF.

The first ETMF, Eaton Vance Stock NextShares (EVSTC), invests in the same portfolio as $95 million Eaton Vance Stock Fund (EAERX), an equity mutual fund that holds mostly large U.S. stocks. Both are managed by Charles Gaffney. The mutual fund has outperformed the S&P 500 index for the past one-, three- and 10-year periods
Regards,
Ted
http://www.investors.com/etfs-and-funds/etfs/nextshares-new-product-combines-active-management-with-etfs/

M* Snapshot EAEFX:
http://portfolios.morningstar.com/fund/holdings?t=EAERX

msf

I still think this is a solution in search of a problem. This "hybrid that combines what some consider the best parts of the actively managed fund with an ETF" also seems to combine some of the worst attributes.

Like an ETF (and unlike a mutual fund) you're subject to a bid/ask spread (generally paying more than NAV to buy, and selling for less). And it is subject to broker commissions.

It does avoid market tracking error (where the ETF price deviates from the underlying portfolio's NAV) by using the end of day NAV - but that also means that the pricing (aside from bid/ask spread) is like a mutual fund. Even if you sell mid-day in a falling market, you'll get the end-of-day price. So from a pricing perspective, ISTM this is the worst of both worlds - the cost of the spread without the attribute of instantaneous pricing.

The cost difference (vs. the mutual fund) is misleading. The article suggests that the ETMF cost should be lower because it has no 12b-1 fee. But neither does the share class (EIERX) to which it is comparing the ETMF.

Both ETMF and mutual fund are benefiting from temporary fee waivers, though the mutual fund waiver is greater. Thus the difference in costs is artificially small. The cost benefit of the ETMF (sans waivers) would be larger. However, that just means the even the ETMF would cost more than the stated 0.65% ER, to wit 0.83% - hardly compelling for a large cap blend fund.