Legg Mason wants to build 'better' ETFs

Money manager asks the SEC for permission to build exotic funds.
SEP 08, 2015
Legg Mason Inc. has asked U.S. securities regulators for permission to build index-tracking ETFs, a first step toward building its own business after poaching two Vanguard executives. In a statement Wednesday, Legg Mason said its application is “the next step in building the organizational structure to offer a suite of passively and actively managed ETFs.” Legg Mason said the index exchange-traded funds are going to be “better beta,” a turn of phrase that appears to hint at investment strategies tracking exotic underlying indexes. If the application is approved, for instance, the funds could take short positions. In February, Legg hired two executives from the Vanguard Group Inc.'s ETF business, which is the second largest globally. MANAGERS SLOW TO EMBRACE ETFS Top fund managers have been slow to embrace ETFs despite their growth to $2 trillion in the U.S. Managers have resisted the industry's perceived lower profitability and a requirement that active managers disclose their portfolio holdings daily. Legg Mason, with $703 billion in assets, sells funds produced by its affiliate brands — including Western Asset, ClearBridge Investments and QS Investors — through every top U.S. broker-dealer. Legg won approval for actively managed ETFs in 2012, but it hasn't launched any. Sixteen of the top 25 mutual fund families lack ETF lineups under their own brand. Gaining approval from the SEC is the first step to change that. SEC SAYS YES The Securities and Exchange Commission has already approved, or said it was likely to approve, 19 applications for index-tracking or active ETF lineups this year. It said yes to American Funds parent Capital Group Cos. Inc., The Goldman Sachs Group Inc., and Bill Gross employer Janus Capital Group Inc.

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