UBS Financial Services intends to make NextShares, a new variety of investment funds, available to its adviser network starting next year.
The Swiss wirehouse announced on Wednesday that it signed a deal with NextShares’ parent company Eaton Vance to offer the new NextShares exchange-traded managed funds, which will be listed on Nasdaq. While they resemble traditional ETFs, these hybrid products will be priced like mutual funds, based on their net asset value.
UBS will be the first full-service wealth manager to offer the funds. They will become available for brokerage accounts in early 2017, and then in fee-based advisory accounts later in the year.
In addition, UBS Asset Management Americas plans to work with NextShares to develop and launch its own versions of the funds in 2017.
“We believe that NextShares is a great enhancement to our platform because they offer actively managed strategies while providing the cost and tax benefits of ETFs,” says Jeffrey Miller, managing director of UBS Wealth Management Americas. “The move also demonstrates our commitment to innovations that will better service our advisers and clients, as well as the capabilities of our platform.”
Launched in February, the NextShares funds are actively managed by Eaton Vance managers and seek to exceed benchmark performance. They trade on an exchange like ETFs, but do not disclose their holdings on a daily basis, a feature the company says will eliminate the possibility of other market participants front-running the fund’s trades.
The funds’ market prices are also linked to their next daily NAV, and not determined at the time of trade executions like ETFs. As a result, investors cannot purchase or sell shares of the funds intraday, and must wait until the following day to learn of their trade values.
A potential drawback of the funds is that it may take some time for the industry to understand it, says Miller. “It took many years for people to understand ETFs so in the early years they were slow. NextShares could experience the same thing.”
Anticipating this challenge, NextShares and UBS will work together to educate advisers about the new products. “We collectively view adviser education as a critically important element to this. That’s why we are so committed to having an effective program so people will understand how to properly use them in client portfolios,” says Stephen Clark, president of NextShares.
Todd Rosenbluth, director of ETF and mutual fund research at S&P Global Market Intelligence, says that the small asset base of the existing NextShares funds will likely limit management’s ability to fully implement their strategy. That is why the deal with UBS “is important for the viability of the NextShares product lineup.”
Eaton Vance has received regulatory approval for 18 NextShares funds so far, three of which have been listed on Nasdaq. As of July 13, the three funds have a cumulative $17.7 million in net assets.