Eaton Vance's NextShares gets its first custodian on board

FOLIOfn Investments said it plans to offer the exchange-traded managed funds when they start trading.
AUG 18, 2015
NextShares, the new fund structure from Eaton Vance Corp. designed to reduce the costs of active management, has won its first broker-dealer partner. Two investing platforms managed by Foliofn Investments Inc. will offer the funds to financial advisers and other investors, the McLean, Va.-based custodian and brokerage firm said Tuesday. Folio works with nearly 500 financial advice firms, according to a spokeswoman. The deal is the second distribution deal for NextShares in three weeks. Last month, Envestnet Inc., which runs platforms used by 41,000 affiliated financial advisers, agreed to make the funds available once they have started trading. NextShares, also known as exchange-traded managed funds, are owned by Eaton Vance, an actively managed mutual fund company that's hoping to replace those widely used products with a potentially more tax-efficient vehicle that could lower costs and improve performance for investors. Some money managers say those efficiencies have helped index-based exchange-traded funds grow at the expense of active management. Index-tracking products have dominated the fast-growing $3 trillion global market for exchange-traded funds. Eaton Vance's is the only product of its kind that's been approved by U.S. regulators, though other top fund managers from the Vanguard Group Inc. to Fidelity Investments are looking to win similar approvals. Nearly a dozen outside managers have licensed the NextShares technology, including Gabelli Funds, Hartford Funds and Principal Management Corp. It's unclear when NextShares will start trading; initially pegged for a launch earlier this year, their start date has been pushed out. “It’s one step closer to these things becoming a reality,” said Jonathan Isaac, managing director at Navigate Fund Solutions, the Eaton subsidiary that promotes NextShares. “We continue to push towards a launch date as soon as we can.” The firm is convening a summit this fall to update its asset-manager partners about NextShares distribution through broker-dealers as well as to develop a launch plan that includes an emphasis on educating advisers and other constituents about how the products will work. “As with ETFs, it took some time, but after the adoption of [financial advisers], people became comfortable with those things,” said Mr. Isaac. Folio's custody platform for advisers is called Folio Institutional. Its consumer-facing, online brokerage, called Folio Investing, allows investors to build portfolios of stocks, ETFs and mutual funds and fractional shares of those securities. Greg M. Vigrass, chief executive of Folio Institutional, said he doesn't expect challenges as advisers learning how to trade NextShares, which combine some aspects of mutual funds with some of ETFs. “The news from Envestnet that they were looking at making the product available, at a lot of firms, piqued a lot of interest,” said Mr. Vigrass. “That prompted many that might not have already been thinking about the product to begin thinking about it.” Mr. Vigrass said the Eaton Vance subsidiary that runs NextShares will help the firm finance the upgrades it needs to make the funds available.

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