* Huntington executive says SEC did not deny outright
* Some hope agency will still consider conversions
By Jessica Toonkel
NEW YORK, June 21 Mutual fund and
exchange-traded fund providers were aflutter on Wednesday after
hearing that the U.S. Securities and Exchange Commission had not
approved a request by Huntington Asset Advisors to fold an
existing mutual fund into a new actively managed ETF.
At one firm that offers both mutual funds and ETFs,
executives were e-mailing back and forth about the issue within
minutes of learning that Huntington would instead launch an
active ETF clone alongside its mutual fund, an executive at the
"We have a lot of money in proprietary mutual funds and if
they go the way of the dodo bird, we have to be prepared from a
legal perspective," said the executive, who declined to be named
because he is not permitted to speak to the press.
Noah Hamman, chief executive and president of AdvisorShares,
which distributes active ETFs, said he hopes the SEC might
consider the issue again. AdvisorShares distributes 14 active
ETFs that together have $575 million in assets. Hamman said
allowing funds to fold into a new actively managed ETF could be
a boon for less-connected fund managers.
"If you have a five star manager that really struggled with
getting access on the wirehouses or doesn't want to pay the 25
basis points or revenue share, this is a way they could bring
over their track record and sell their fund as an ETF," he said.
"The SEC should allow it."
After telling Reuters on Wednesday that the SEC would not
allow it to convert the mutual fund to an active ETF, Randy
Bateman, president and chief investment officer of Huntington
Advisors, the asset management arm of Huntington Bancshares Inc
, said on Thursday that the agency did not issue an
Rather, after two years of the SEC repeatedly asking new
questions about its request, Batemen said the company believed
it was never going to get approval for its application and
decided to cut its losses and instead launch an ETF clone
alongside its mutual fund.
"We did not want to hold up our entire entry into the ETF
business, not to mention the further bleed of attorney fees,"
An SEC spokesman did not return calls for comment.
In June 2010, Huntington filed to launch two actively
managed ETFs: the Huntington Ecological Strategy Fund
and the Huntington Rotating Strategy Fund.
The latter is an ETF clone of an existing Huntington mutual
fund that had $41 million in assets as of March 31. Huntington
planned to close the mutual fund and allow its investors to move
the money, tax-free, to the new ETF.
Huntington launched its first active ETF, the Huntington
Ecological Strategy ETF, which targets ecologically focused
companies and products, on Tuesday. Its Sector Rotations ETF
will come to market on July 25.
Bateman said Huntington will make sure the new ETF is not
exactly like the mutual fund so it does not cannibalize assets.
He declined to elaborate.
Active ETFs are still a very small portion of the $1
trillion-plus U.S. ETF market, in large part because it has been
difficult for firms to get SEC approval to launch products,
expert said. There are only 49 actively managed ETFs, with a
total of $6.8 billion in assets, according to Morningstar.
An agency approval would have made it much easier for any
fund company to get such approval. That in turn would mean
easier entry into the actively managed ETF sector for fund
companies, since they could have launched active ETFs that
automatically had assets in them, experts said.
In that case, the firms also would have been able to use the
mutual fund's historical performance when marketing the ETF.