First in a wave of next-gen ETPs to start trading next month

Eaton Vance and Nasdaq announced that the first NextShares (ETMFs) will start trading in late February. The new funds are a fusion of actively managed funds with the structure of ETFs. Unlike traditional ETFs, NextShares will be the first to be exempt from disclosing their holdings on a daily basis. BlackRock is awaiting approval of its request to launch a similar product as are State Street Global Advisors, Invesco and Precidian, which counts Capital Research and Management among its supporters. The news comes as Bill McNabb, CEO of Vanguard calls for a slowdown in the roll-out of ETFs.

Eaton Vance and Nasdaq said Monday that the first NextShares (EVSTC) will begin trading late next month. The new fund structure — dubbed “a hybrid product” — aims to combine features of an actively managed mutual fund with the structure of an ETF.

“Our initial NextShares will offer investors access to established fund strategies in a new structure with significant potential investor benefits,” said Eaton Vance CEO & Chairman Thomas E. Faust Jr., in a statement. “The fund’s introduction provides the first opportunity to demonstrate the performance, tax efficiency and trading characteristics of NextShares.”

According to the company, NextShares “offer the potential for benchmark-beating returns based on the manager’s proprietary investment research.”

But even with lower costs for NextShares compared with traditional Eaton Vance actively managed mutual funds, is the cost of such “non-passive” products worth the price?

In the minds of some speakers at the Inside ETFs 2016 conference taking place this week in Hollywood, Florida, the answer, generally speaking, is no.

“Active managers persistently fail after expenses,” said Larry Swedroe, director of research for wealth manager Buckingham, who spoke to some 2,000 conference attendees on Sunday.

“When they add value before expenses, they are exploiting dumb retail money,” Swedroe added.

Several economists and financial analysts at the conference spoke about returns reverting to the mean. Furthermore, they stressed that the era of annual returns averaging 7% or 8% is over, due to low interest rates and other factors.

Swedroe, for instance, pointed to a survey of economists that predicted 4% to 5% annual real returns in the U.S. at least for the long term. In addition, these returns need to be adjusted for inflation, which is assumed to be 2%, resulting in a total nominal return of 6% to 7%.