Exchange Traded Managed Fund (ETMF)

Exchange-traded managed funds (ETMFs) are a type of fund approved by the Securities Exchange Commission (SEC) in 2014. They are a hybrid between mutual funds and exchange-traded funds (ETFs). They were created for the global investment company Eaton Vance and are branded as NextShares on NASDAQ.

ETMFs are a middle ground between mutual funds and ETFs, combining aspects of different existing types of funds in order to retain both efficiency and portfolio confidentiality. They carry many of the same characteristics as mutual funds, including:

• Disclosing quarterly holdings, rather than daily holdings, in order to preserve confidentiality
• Flexibility to be traded throughout the day

ETMFs also include many elements of exchange traded funds, including:

• Tax efficiency, since the funds do not draw capital gains
• Net asset value (NAV)–based trading

At the end of each trading day, ETMFs price the NAV, taking into account any premiums or discounts in the trades. This NAV is then used as a retrospective basis for that day's trading. Essentially, trades occur throughout the day at a proxy price since the actual price won't be determined until the market closes for the day.

ETMFs pose a unique and novel opportunity for investors. Like mutual funds, ETMFs are actively managed, but they don't pose the same risks as traditional actively-managed ETFs. Since ETMFs can be bought and traded directly through a stock exchange, they are also cost- and tax-efficient for the investor, as they eliminate the costs and fees associated with intermediaries.

Eaton Vance's NextShares were approved by the Securities Exchange Commission (SEC) in late 2014. However, due to rules and regulations, they did not start trading until early 2016. Any exchange on which ETMFs trade must complete SEC Form 19b-4, which requires the exchange to upgrade its system to be able to host daily trading based on a proxy price. To date, the following Eaton Vance ETMFs are trading on the market:

• Eaton Vance Stock NextShares (EVSTC): This was the first ETMF to begin trading on the market.
• Eaton Vance Global Income Builder NextShares (EVGBC): This ETMF invests primarily in common stocks, but also in income obligations, preferred stocks and hybrid securities.
• Eaton Vance TABS 5-to-15 Year Laddered Municipal Bond NextShares (EVLMC): This ETMF invests in attractively valued securities, based on research.

Eaton Vance plans to release more NextShares in 2016, and other companies have since followed suit and requested their own ETMFs. However, it is unclear when these funds will be approved and, if they're approved, when they'll be able to start trading.