Next Investments, the New Jersey-based structured products developer, has filed to launch its first exchange-traded fund.
The proposal is for a new fund of funds. Its only holding would be the S&P 500 SPDRs (NYSE: SPY). Every month, the ETF’s adviser would sell a certain percentage of the portfolio’s shares.
What’s interesting about this ETF is that by making predefined distributions on a regular basis, such payouts could be treated as return of capital for tax purposes. That would seemingly provide investors with a way to earn tax-deferred treatment of distributions from the fund.
In the filing, Next notes that at SPY’s current yield of around 2%, the new ETF’s targeted rate of return—with a majority of distribution payments coming on a tax-deferred basis—would provide roughly another 4% to the fund’s income stream.
But that’s just yield. The fund would remain invested at all times in SPY.
Officials at Next Investments declined to comment on the filing on Wednesday. However, Next Investments Chief Executive Dan McCabe has told IndexUniverse.com in the past that the firm is working on developing a suite of different ETFs. A patent is pending on the structured distribution process for ETFs created by Next.