Exchange-Traded Mutual Fund (ETMF)

What Is an Exchange-Traded Mutual Fund (ETMF)?

An exchange-traded mutual fund (ETMF) is an exchange-traded security that is a hybrid between an exchange-traded fund (ETF) and an open-end mutual fund. It may also be known as an exchange-traded managed fund.

ETMFs allow a standard net asset value (NAV)-based mutual fund to trade in real-time on a stock exchange, similar to the trading of a stock or ETF. ETMF intraday trading prices will be directly linked to the fund’s next end-of-day NAV. All bids, offers, and trade prices will be quoted in terms of premium or discount to the end-of-day NAV (like NAV+$0.02 or NAV-$0.05). For each trade, the premium or discount to NAV is locked in at trade execution time and the final transaction price is determined once NAV is calculated at the end of the day.

Understanding Exchange-Traded Mutual Funds

An exchange-traded mutual fund is essentially a mutual fund available in the guise of an ETF. Exchange-traded mutual funds offer the benefits of both mutual funds and ETFs. They can combine the advantages of investment strategies of an actively managed mutual fund and the performance and tax efficiencies of an ETF.

Exchange-traded mutual funds differ from a traditional ETF in many ways. They are not required to disclose their portfolio holdings on a daily basis, enabling them to protect confidential portfolio trading details. The funds trade in real time using NAV-based trading with prices quoted in terms of premium or discount. Exchange-traded mutual funds utilize “in-kind” transfers of portfolio securities in redeeming and issuing fund units, thereby saving on transaction costs.

Exchange-traded mutual funds can give intraday and short-term traders some arbitrage and speculation opportunities on mutual funds. The funds pay capital gains and offer dividend income for long-term investors.

ETMF Investing

Eaton Vance offered one of the first ETMFs in February 2016, Eaton Vance Stock NextShares (EVSTC). EVSTC invests in growth stocks and is also offered as a mutual fund, the Eaton Vance Stock Fund. As of April 2021, EVSTC reports a since inception NAV return of around 16%. Different from most ETFs, NextShares are actively managed and seek to exceed the returns of their performance benchmark and peer funds.

Since the launch of EVSTC, numerous other ETMFs have also been launched by NextShares, a wholly-owned subsidiary of the mutual fund company Eaton Vance. Other NextShares funds include: Floating-Rate NextShares (EVFTC), Global Income Builder NextShares (EVGBC), Oaktree Diversified Credit NextShares (OKDCC), Stock NextShares (EVSTC), and TABS 5-to-15 Year Laddered Municipal Bond NextShares (EVLMC).

NextShares are listed and trade on Nasdaq, much like exchange-listed stocks and ETFs, but are priced at the fund’s next end-of-day net asset value (NAV) plus or minus a trading cost determined when the trade executes.