Barclays Global Investors’ iShares group is apparently moving forward with plans to launch actively managed exchange-traded funds.
In a filing dated May 4, BGI is requesting approval from the Securities and Exchange Commission to open two broad-based active ETFs. One would focus on stocks and the other on bonds.
The exemption request was actually made on the behalf of two subsidiaries—Barclays Global Fund Advisors and iShares Inc. A third outside party, SEI Investments, would serve as distributor.
The proposed ETFs would be:
- The iShares Active Equity Fund. It would invest at least 80% of its assets in large-cap U.S. stocks.
No specifics are given on where the remaining 20% can go, but a section of the document does describe how the fund can use American Depository Receipts, or ADRs, with foreign-based companies.
While not holding to any index, the ETF’s adviser will select from the 1,000 largest stocks traded on domestic exchanges. “BGFA will utilize a portfolio construction and optimization process to select stocks in the initial equity fund which incorporates proprietary investment insights,” the filing stated.
But here’s the real interesting part: “BGFA will seek to weight the securities in a transparent quantitative manner. The weighting of the securities will be consistent with research suggesting that equal weighted approaches to stock selection may provide superior risk adjusted returns.”
The fund would also be permitted to invest in futures contracts, options and other derivative instruments. Those could include among others: convertible securities; floating rate securities; credit-linked notes and preferred stock.
It could also make short sales “to enhance returns as part of an overall investment strategy or to offset a potential decline in the value of other holdings,” the filing added.
- The iShares Active Fixed Income Fund. It would also use a “systematic method that relies on proprietary quantitative models to allocate assets,” according to the filing.
“BGFA’s models also allocate assets among different maturities based on yield characteristics and expectations,” the document added.
The ETF would primarily invest in investment-grade securities. But it could put up to 30% into noninvestment-grade, or junk, bonds. It would also take short positions and invest in futures, other ETFs and cash.
No expense ratios are listed in the filing, although it states that costs should be relatively low to investors.
Specifics on turnover rates expected for the funds also aren’t detailed. But the document does state that portfolio changes would be disclosed the following day. In essence, that means any trading in positions would be disclosed to investors on the first day that those changes would show up in either funds’ net asset values.
Also, the filing specifies that “the Adviser will disclose on the Company’s website the identities and quantities of the securities and other assets held by each Fund.”
Calls to BGI requesting more information and comments on the filings weren’t returned.
It’s worth noting that the most recent filing is an amendment to an earlier request. On Jan. 12, BGFA and iShares requested to offer a series of actively managed ETFs. In that document, references were made specifically to active currency ETFs. But no details were supplied at the time.
You can find the most recent filing here. The earlier document can be viewed here.
The entry of BGI into the active management game would follow the launch earlier this month of what has been billed as the first purely qualitative, fundamental-driven active ETF. The Grail Advisors offering is being subadvised by a team of outside managers using traditional active methodologies typically only seen in mutual funds—until now. (See related stories here and here.)
Earlier this week, IndexUniverse.com reported that Claymore has filed to launch what would be the first actively managed commodity ETFs. The request also includes an active emerging markets infrastructure stock fund. (See related article here.)
WisdomTree Investments already has several currency ETFs that are actively managed. And PowerShares opened the stock ETF market to active management early last year with the launch of three quant-driven portfolios that don’t follow indexes and have free-wheeling trading mandates. (See related story here.)
It added a fourth, an active real estate ETF, late last year. (See related story here.)
The foray into active management by BGI, of course, comes as the ETF industry’s leading asset manager by assets is being auctioned by parent Barclays Plc. The London-based bank is trying to raise funds to improve its debt position as the global credit crisis continues in financial services. (See related story here.)