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Blue Tractor Group releases beta version of Shielded Alpha ETF software


Blue Tractor Group has launched a beta release of cloud hosted software facilitating the operation of its Shielded Alpha exchange traded fund (ETF) structure. This release is available to third parties for assessment and testing purposes.

The Shielded Alpha ETF structure is highly transparent, disseminating daily to the market a creation basket (aka the portfolio composition file or PCF) consisting of 100 per cent of the securities in the fund’s actual portfolio but importantly, not their actual portfolio weightings, thereby fully obscuring an active manager’s alpha generation strategy. A Shielded Alpha ETF’s creation basket weightings would have a minimum 90 per cent asset value overlap with the fund’s actual portfolio weightings at the beginning of each trading day. As such, a Shielded Alpha ETF would not be a non-transparent ETF, but rather a highly transparent ETF.

Blue Tractor’s secure cloud hosted software would be accessed at the end of each day’s trading by an ETF advisor or its custodian to algorithmically generate the creation basket used the following day by ETF market makers and authorised participants for high frequency intra-day pricing, bona fide arbitrage, hedging and in-kind creations and redemptions directly with the ETF. For all intents and purposes, the creation basket for a Shielded Alpha℠ ETF would operate identically to the creation basket used for existing transparent ETFs.

“By implementing a cloud hosted service, we are providing advisors and custodians with a simple, straightforward solution, immediately available for assessment and testing and eventual issuance of Shielded Alpha℠ ETFs”, says Cathryn Graham, Chief Technology Officer of Blue Tractor. “We have ensured the service is completely encrypted, offers customisation for every client on a fund-by-fund basis, and because it will generate the daily PCF file after the end of day trading in literally minutes, is fully compatible with the PCF file requirements promulgated by the National Securities Clearing Corporation for transparent ETFs.”

Terence (Terry) Norman, Founder of Blue Tractor, adds: “While passive and smart beta strategies have been the main drivers of growth for the ETF market to date, we believe that actively managed equity ETFs that do not disclose their full portfolios on a daily basis are poised to be the next growth sector. At its heart, the Blue Tractor structure is a highly transparent ETF wrapper that actively managed equity fund managers could use to accrue for their fund and investors the cost, tax and exchange-traded benefits of an ETF versus a traditional actively managed mutual fund, while still fully obfuscating their proprietary investment strategies.” 

Blue Tractor intends to license the software to fund advisers who wish to bring to market proprietary active strategies within the Shielded Alpha ETF wrapper.  The US Securities and Exchange Commission has yet to approve the Shielded Alpha ETF structure. 

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