Blue Tractor Group and Blue Tractor ETF Trust have filed an application with the US Securities and Exchange Commission (SEC) seeking exemption and relief from select provisions of the Investment Company Act of 1940 for a new exchange traded fund (ETF) structure called a Shielded Alpha ETF.
A Shielded Alpha ETF is a hybrid structure incorporating the structural attributes and efficiency of a transparent actively managed ETF, while completely shielding the fund's alpha generation strategy and trading from the market. The patent pending algorithms facilitate pricing, hedging and arbitrage without third-party involvement and at no point are the fund's portfolio holdings known to anyone except for the fund and its custodian.
Terence (Terry) Norman, Founder of Blue Tractor and the originator of the novel concepts underpinning the Shielded Alpha ETF structure, says: "We are very pleased to have submitted our Application and look forward to working with the SEC over the coming months. It is important to emphasise that a Shielded Alpha ETF is not a non-transparent ETF since with our structure the market will have daily insight into at least 90 per cent of the holdings in the underlying fund portfolio. However, actual holdings and weightings are shielded so that the portfolio is completely unknown, preventing any risk of reverse engineering and related issues such as front running and free riding."
With trillions of dollars of assets under management in the US flowing to passive indexed mutual funds and transparent ETFs at the expense of actively managed mutual funds, Blue Tractor believes it is becoming a strategic imperative to be able to offer investors actively managed products that confer the efficiency and lower cost of a transparent ETF, while still preserving proprietary alpha strategies. Blue Tractor's says its Shielded Alpha ETF offers active managers an elegant solution.
Simon Goulet, Co-Founder of Blue Tractor, adds: "Since early 2015 we have been speaking to market makers, exchanges, issuers and the SEC. These discussions were very helpful to refine the unique attributes of the Shielded Alpha℠ ETF structure and ensure that we address concerns related to pricing, hedging, arbitrage and the '40 Act. Blue Tractor's business strategy is to speak with all parties interested in active management and work with select issuers and the SEC to bring this product to market."