The first NextShares fund is finally coming to market. This week, the Eaton Vance Stock NextShares fund (EVSTC) will begin trading on the NASDAQ exchange with shares available for purchase by individual investors, financial advisors and institutions through online B/Ds, Folio Investing and Folio Institutional.
NextShares are a hybrid of actively managed mutual funds and exchange traded funds (ETFs). They are designed to address the performance disadvantage of many actively managed funds (vs. index products) that results from the relatively burdensome cost structure of the traditional mutual fund. NextShares shave costs vs. mutual funds in several ways:
1. They have no sales loads, distribution or service fees
2. They have lower operating costs and lower fund trading costs since they do not have to move money in and out to manage redemptions
3. They have less cash drag since they don’t need reserves for shareholder withdrawals
It will be interesting to track the growth of this new product type and its impact on the packaged investment product marketplace. NextShares may convince current or potential ETF investors to reconsider active management due to lower costs. Or, they may cannibalize the active management mutual fund market as a lower cost option for the same product. Either way, we see potential upside for NextShares in the intermediate term as more funds are offered and the distribution outlets multiply.