ClearShares lists, essentially, a money market ETF
With the help of white labeller ETF Series Solutions, New York-based advisor group ClearShares is listing a new actively managed fixed income ETF that looks and smells like a money market fund.
The ClearShares Ultra-Short Maturity ETF (OPER) will invest in repurchase agreements (“repos”) collateralized by US government securities, the prospectus says. And will invest, to a lesser extent, directly in fixed income securities, including treasuries, municipals and mortgage-backed securities guaranteed by the US government.
OPER can also invest cash and cash equivalents, as well as other ETFs and investment companies “that provide exposure to securities similar to those securities in which the Fund may invest in directly,” the prospectus says. And leaves a 15% margin open to invest in illiquid securities.
While bearing a resemblance, the prospectus insists OPER “is not a money market fund and does not seek to maintain a stable net asset value of $1.00 per share.”
OPER’s effective duration will be one year or less and average weighted maturity less than a year.
ETF rule coming in
Having been discussed for years, the SEC appears likely to bring in an “ETF rule,” helping to make a level playing field for ETF issuers.
At present, wannabe ETF issuers require SEC exemptions before they can list ETFs under the 1940 Act. These exemptions are expensive and given out by the SEC on a case-by-case basis. Besides creating barriers to entry, the exemption process has created a bespoke market that’s full of inconsistencies.
Problematically, these inconsistencies have given some ETF providers steep and lasting competitive advantages. For example, Direxion and ProShares were given approvals for their leveraged/inverse ETF in the mid-2000s. After a string of lawsuits, however, the SEC backtracked and shrunk the approvals it gave for leveraged ETFs. The wind down has created a rock-solid barrier to entry protecting the two leveraged ETF specialists. (Interestingly, however, the proposed ETF rule would not end this).
It has also partly meant that ETF issuers are getting acquired at large premiums. Part of the reason Korean asset manager Mirae paid $488 million for Global X (widely regarded as too high a price for the small-medium sized issuer) was that it would spare Mirae the rigmarole of getting SEC exemptions.