Star money manager Mario J. Gabelli is endorsing the mutual fund-ETF hybrid NextShares.
In a deal with Mr. Gabelli's GAMCO Investors Inc., announced Tuesday, Eaton Vance Corp. secured its second outside client for its novel fund structure that trades on exchanges but gives fund managers the ability to withhold disclosure of portfolio holdings.
“GAMCO elected not to participate in the growth in ETFs as our bottom-up research effort has been in part focused on securities in the microcap, small-cap, and mid-cap sectors of the market,” said Mr. Gabelli, the firm's chairman and chief executive, in a news release. “As stock pickers, we are now pleased to participate in the exchange-traded product marketplace.”
(Watch: Actively managed ETFs: What you need to know)
Eaton Vance executives say NextShares
can trim the transaction costs and other inefficiencies of mutual funds,
a product they hope to replace. They won the approval of securities regulators last year to bring the products to market.
Before they can do so,
broker-dealers and exchanges must develop the infrastructure to support trading the novel funds.
And Eaton Vance must convince their active manager competitors, many of whom are eyeing entry into a fast-growing exchange-traded fund marketplace dominated by index-tracking products, to license the ability to sell NextShares.
As part of the agreement with Eaton Vance, Rye, N.Y.-based GAMCO is preparing to file an application with the Securities and Exchange Commission for permission to offer NextShares.
(Don't miss: Precidian Investments takes a second shot at regulatory approval for active ETFs)
Mr. Gabelli is one of the industry's best compensated and recognizable leaders. GAMCO manages $46.9 billion in mutual funds and other investment products.
American Beacon Advisors Inc. was
the first firm to sign up with Eaton Vance.
In
an interview last week, Stephen W. Clarke, the executive in charge of selling NextShares licenses for Eaton Vance, said the firm has open dialogue about the fund structure with “most” of the “top 40” fund managers.
However, some executives at those companies, speaking privately, said they were waiting to see if NextShares would draw interest from broker-dealers and if there were any alternatives that would allow them to avoid licensing from a competitor or deviating too much from existing fund structures that might be more easily explained to advisers and fund wholesalers.
The SEC has approved only actively managed ETFs that disclose their portfolio holdings daily, an obstacle for many fund managers.
