UBS will be first major
wealth manager to embrace new kind of fund
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[July 13, 2016]
By Trevor Hunnicutt
NEW YORK (Reuters) - UBS Group AG said
on Wednesday it will offer a new type of investment fund called
NextShares through its U.S. wealth-management unit, becoming the
first major distributor for a product that backers hope will replace
NextShares are a mash-up of a typical mutual fund - with a manager
buying and selling stocks or bonds in hopes of beating the market -
and an exchange-traded fund built to shave trading costs and taxes.
Investors buy NextShares throughout the day, like ETFs, but they
price after the market closes, like mutual funds.
UBS will offer the funds starting in 2017, according to Jeff Miller,
a UBS Wealth Management Americas managing director, in an interview.
The unit includes about 7,100 brokers and financial advisers.
The Swiss bank also said its American asset-management unit will
manage its own set of NextShares funds, making it the 13th announced
fund manager to do so. Other managers include Columbia Threadneedle
Investments, Gabelli Funds and Hartford Funds.
Boston-based Eaton Vance Corp, which owns the NextShares brand,
launched the first such fund on NASDAQ in February.
U.S. securities regulators require ETFs that try to beat the market
disclose their holdings daily, but they made an exception for
NextShares when approving the new fund category in 2014. Managers
only have to disclose the funds' holdings quarterly so copycat
investors cannot track their trades.
Eaton Vance Chief Executive Tom Faust said NextShares could
eventually replace mutual funds because their unique structure makes
them big money-savers for investors.
For instance, mutual funds often redeem shares by selling securities
and cashing out the investor. Selling securities that gained value
can generate a taxable payout to fund investors, and holding extra
cash to meet redemptions can hurt performance.
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The logo of Swiss bank UBS is seen at an office building in Zurich
July 27, 2015. REUTERS/Arnd Wiegmann
NextShares, like ETFs, can simply trade underlying securities for shares of
their own funds, which generally does not lead to a taxable payout.
Investors buying and selling NextShares also swallow their own trading costs -
those costs usually are shared by all investors in a typical mutual fund.
Eliminating those costs and fees could help investors beat the market, Eaton
Vance has said.
But Eaton Vance faces the challenge of training investors to use the funds,
demonstrating that NextShares perform well and convincing brokerages and asset
managers to offer the products.
NextShares is helping UBS pay some costs related to the launch, Miller said.
(Reporting by Trevor Hunnicutt)
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