Barclays Global Investors’ iShares group is apparently moving forward with plans to launch actively managed exchange-traded funds.
In a filing dated May 4, BGI is requesting approval from the Securities and Exchange Commission to open two broad-based active ETFs. One would focus on stocks and the other on bonds.
The exemption request was actually made on the behalf of two subsidiaries—Barclays Global Fund Advisors and iShares Inc. A third outside party, SEI Investments, would serve as distributor.
The proposed ETFs would be:
•The iShares Active Equity Fund. It would invest at least 80% of its assets in large-cap U.S. stocks.
No specifics are given on where the remaining 20% can go, but a section of the document does describe how the fund can use American Depository Receipts, or ADRs, with foreign-based companies.
While not holding to any index, the ETF’s adviser will select from the 1,000 largest stocks traded on domestic exchanges. “BGFA will utilize a portfolio construction and optimization process to select stocks in the initial equity fund which incorporates proprietary investment insights,” the filing stated.
But here’s the real interesting part: “BGFA will seek to weight the securities in a transparent quantitative manner. The weighting of the securities will be consistent with research suggesting that equal weighted approaches to stock selection may provide superior risk adjusted returns.”
The fund would also be permitted to invest in futures contracts, options and other derivative instruments. Those could include among others: convertible securities; floating rate securities; credit-linked notes and preferred stock.
It could also make short sales “to enhance returns as part of an overall investment strategy or to offset a potential decline in the value of other holdings,” the filing added.
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