Cboe and Precidian held a networking dinner in New York City for attendees to learn more about the next steps licensees of ActiveShares will take to bring their products to market.
Dan McCabe, CEO of Precidian Investments, spoke with ETF Trends about some of what he feels are significant developments in their process regarding ActiveShares, an ETF developed by Precidian for actively managed strategies that are only as transparent as today’s mutual funds.
“This is all about servicing that end client,” McCabe said. Whether some managers are vehicle agnostic or have a desire to let the client retain as much of their own performance as they can, the end result satisfaction is where Precidian’s methodology can come through.
As of now, Precidian has licensed 14 different parties, currently. They are the very largest asset managers in the country, including Legg Mason, BlackRock, Capital Group, JP Morgan, GSAM, Nationwide, Gabelli, Columbia Threadneedle, American Century Investments, Nuveen, among others, all of which have been pleased to note their involvement in their press releases previously.
McCabe points out how these are the types of major clients that want to be apart of something significant. Fortunately, ActiveShares will be able to enable them to be able to achieve what they want, delivering their expertise in a package that is more efficient and more effective than what they have had in a mutual fund format.
That in mind, having the support of these entities has enabled Precidian to be sure the entire ecosystem is ready for what they have plans to accomplish by having an already available functionality for what they have planned. It puts Precidian in a unique and gainful position.
The Mutual Benefits
There is a mutual benefit, as well. While Precidian’s management team is made up of market experts and financial engineers, the message is a simple one for financial advisors who want to know that this operates like any other ETF. Even those investors that utilize market cap-weighted ETFs today are not necessarily familiar with the creation and redemption process of an ETF. They’ll want to know that the functionality and efficiencies residing in today’s ETFs will be the same for ActiveShares – and they are.
Being sure the same process for eliminating the low-cost embedded shares out of the fund to make it more tax-efficient also resides in the ActiveShares is important. The ability to remove transfer agency fees and potentially lower cost for the end investor should be a key component of the ActiveShares. Even more factors, such as the removal of 12B-1 fees, serve as a benefit to the end shareholder.
“All of these benefits that we have grown accustomed to with ETFs, again, reside in the ActiveShares structure,” McCabe continues. “So, to the FA’s client, it’s going to look, trade, settle, and act just like every other ETF on the market environment.”
Precidian’s team spends a great deal of time on the details, McCabe explains, but those nuances aren’t often noticed by the client. The customer expects that the products will function seamlessly and this design gives confidence they will have the experience they are accustomed to currently.
Working With The Best
It’s also worth noting how collaborative this process has been in putting the recent event focused on ActiveShares together, thanks to the many parties involved and wanting to make it a success. That said, as McCabe wants to make clear as a veteran of the industry, Precidian’s had the best people in the ETF space at the event, both on the panels to explain what’s taking place, as well as in the audience.
Another aspect McCabe wants to be known is how vital industry momentum has been in development.
“By having all these very large asset managers pushing along on the same product design and the same structure, to incorporate their intellectual capital within, I think it’s really critical,” McCabe states. “Having the wind of the industry moving behind this initiative is really quite amazing.”
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ActiveShares is ultimately going to be a healthy move for the industry. By moving the active management community to an exchange-based model, liquidity will be spread throughout the entire day. At the same time, it also means generating the additional hedges around all of those ActiveShares ETF trades, so the underlying component securities become more liquid. These are all great positives for the market community, as well as investors and exchanges.
As far as a timeline is concerned, investors and other firms can expect to see product in market by the end of the fourth quarter, at the earliest, or early first quarter of 2020.
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