* Bank wanted to convert fund to active ETF
* Approval would have allowed for instant track record
By Jessica Toonkel
NEW YORK, June 20 Mutual fund companies and
financial advisers that had hopes of converting their funds into
actively managed exchange-traded funds have had their hopes
After two years of review, the U.S. Securities and Exchange
Commission has denied a request by Huntington Asset Advisors,
the asset management arm of Huntington Bancshares Inc,
to fold an existing mutual fund into a new actively managed ETF.
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 space 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 ETFs.
"It would have been huge for ETFs," said Dave Nadig,
director of research at IndexUniverse, which tracks ETFs. "Can
you imagine being able to take a mutual fund stalwart like the
American Funds Growth Fund of America or Fidelity's
Contrafund and turn it into an ETF?" he said.
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.
Randy Bateman, president and chief investment officer of
Huntington Asset Advisors, said the firm was disappointed with
the SEC's decision, but has decided to launch the active ETF on
its own, alongside the mutual fund.
"We had wanted to be able to promote the track record of the
fund with the new ETF and allow investors to do a tax-free
exchange, but sometimes you have to just capitulate and move
forward," he said.
Bateman did not know why the SEC denied the request. An SEC
spokesman could not immediately provide comment.
Huntington launched its first active ETF, the Huntington
Ecological Strategy ETF, which targets ecologically focused
companies and products, on Tuesday. Its S e ctor Rotations ETF
will come to market July 25.
Bateman said Huntington will make sure the new ETF is not
exactly like the mutual fund so that it does not cannibalize
assets, Bateman said. 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.
One actively managed ETF that has gained traction with
investors - and quickly - is Pacific Investment Management Co.'s
Total Return Exchange Traded Fund, a clone of Pimco's
$261 billion Total Return Fund. Pimco launched the ETF
in March, and the fund already has close to $1.5 billion in
assets - a 22 percent share of the active ETF market.
Pimco, which kept its mutual fund open, garnered attention
largely because of its manager, Bill Gross.
SEC approval of Huntington's plan - and the instant asset
infusion for the active ETF that would followed - would have
made it easier for firms to join Pimco with large, active ETFs
sooner, Nadig said.
"This would have unleashed a lot of potentially new and
innovative ETFs," he said.