Oaktree's Howard Marks Flirts With Bond ETFs He Once SpurnedBy
Howard Marks’s concern about exchange-traded funds seems to be abating.
The billionaire’s investment firm, Oaktree Capital Group LLC, has agreed to sub-advise a debt-focused exchange-traded managed fund that’s due to start mid-November, according to a statement from Eaton Vance Corp., the product’s sponsor. Unlike a conventional ETF, the fund will only set its price at the end of the day rather than throughout, and it won’t reveal its holdings daily. It will, however, still trade on an exchange.
Marks has been a vocal skeptic of ETFs in recent years, warning in 2015 that the products have not been tested in the fires of a downturn, and calling out the liquidity mismatch between easily tradable bond ETFs and some of the less liquid securities that they hold. Other investors, however, have piled into the funds, with debt ETFs gaining $114 billion this year, the most on record.
The new fund is Eaton Vance’s fourth product under its NextShares brand. Known as the Eaton Vance Oaktree Diversified Credit NextShares, it will buy securities such as junk bonds, senior loans and emerging-market debt, according to Eaton Vance’s release.
The money manager has about $20 million in its own NextShares suite, after receiving approval from the Securities and Exchange Commission for the novel structure back in 2014. Designed to support active strategies, these funds prevent front-running by keeping a fund’s holdings hidden, like a mutual fund. The price is set at the end of the day, based on the portfolio’s net asset value, but investors see an upfront transaction cost when they buy or sell.
Eaton Vance has licensed the structure to other asset managers but rivals are seeking approval to start active non-transparent funds using alternative models. Precidian Investments, in which Legg Mason Inc. owns a stake, is for example looking to create funds that price throughout the day.