August 21, 2020
The Nottingham Company has been successful in its application to the US Securities & Exchange Commission for exemptive relief for use of Blue Tractor’s ‘Shielded Alpha’ ETF structure.
The regulator’s approval means that the North Carolina-based fund services administrator and white-label ETF issuer will be able to start offering non-transparent ETF solutions to clients.
Nottingham and affiliate investment advisor OBP Capital, and the Spinnaker ETF Series, filed short-form exemptive relief applications for New York-based Blue Tractor’s novel structure in April earlier this year.
At the same time, it also submitted an application for the deployment of NYSE’s Actively Managed Solution (AMS) non-transparent ETF structure.
The development follows Nottingham’s announcement in January that it had entered into an agreement with Blue Tractor to license its proprietary ETF structure. Through this agreement, sub-advisors managing active portfolio strategies will be able to issue their own branded Shielded Alpha ETFs through Nottingham’s OBP Capital affiliate.
The Shielded Alpha structure is one of a number of competing innovations in the evolving non-transparent ETF space. Others include the aforementioned solution from NYSE as well as Precidian‘s ActiveShares, Eaton Vance‘s NextShares, plus an assortment of exclusive designs under development in-house at asset managers such as Invesco, Fidelity and T. Rowe Price.
The structure is effectively a wrapper that facilitates management of actively managed portfolio strategies within an ETF rather than in a traditional mutual fund or separately managed account, thereby conferring the benefits of an ETF to advisors and investors alike, including lower cost, greater tax efficiency and intra-day liquidity.
However, the proprietary structure fully obfuscates an advisor’s alpha generation strategy and trading execution, while still providing authorized participants and market makers with the transparency necessary to conduct efficient market trading.
Commenting the development, Kip Meadows, Founder and CEO of Nottingham, said, “Non-transparent ETFs are expected to be the next wave of innovation and growth in ETF formations, as portfolio managers look to incorporate active strategies in managing portfolios while preserving their intellectual property.”
“Now that this exemptive relief application is effective, we are well-positioned to launch active ETF structures on behalf of interested clients, making us possibly the first private-label ETF issuer to do so.”
Katherine Honey, Managing Member of OBP Capital, added, “We believe non-transparent ETFs will be a central focus of OBP Capital’s growth over the next few years. The Blue Tractor model is a key element of that strategy.”
Nottingham is expected to be followed in due course by white-label peer, Tidal ETF Services. Tidal, which is a service partner on a range of ETFs, announced in July that it too had licensed the Blue Tractor structure in a similar arrangement, with associate Toroso Asset Management serving as advisor.
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