Eaton Vance Eyes ETF Alternatives
Investment manager Eaton Vance expects separately managed accounts to take a growing bite of the estimated multi-trillion dollar market for index-based strategies.
The asset manager has witnessed its Parametric Custom Core line of offerings grow 50%, to approximately $50 billion, in the past nine months.
“We think there is a lot of legs for this business to grow and we are committed to that as a core aspect of our growth strategy going forward,” said Thomas Faust, chairman and CEO of Eaton Vance, during the firm’s third-quarter earnings call.
Unlike index-based exchange-traded funds and mutual funds, the investors hold the underlying securities positions directly, which lets Eaton Vance, along with its Parametric business line, tailor client portfolios that have a high correlation to a specified equity index.
The direct ownership of the shares also provides investors with a more favorable tax treatment since investors can harvest portfolio losses to offset capital gains.
However, separately managed accounts are not a panacea for every investor looking to adopt a passive investment strategy, according to Faust.
“For one thing, there is a minimum investment at Eaton Vance and Parametric of $250,000,” he said. “It is not a mass-market product. It is for higher net worth investors.”
Secondly, Faust views the separately managed accounts as a factory business.
“Every account is a separate account with individual holdings and separate onboarding process,” he said
Eaton Vance estimates that it is the largest provider as its Parametric business manages more than 40,000 separate accounts.
“Scale matters,” said Faust. “Customization matters; product features matter; and customer service matters.”
Even though Eaton Vance benefits from its economy of scale, it is far from the only asset manager that has staked a claim in this market.
“The most significant is Aperio, which is in San Francisco, but we are two- to three-times its size,” noted Faust. “When we go out for the largest mandates, we go up against them.”
But the greatest competitors are the largest index-based ETF and mutual fund providers
Goldman Sachs Asset Management’s fundamental equity business manages over $20bn in thematic equities.
Dimensional Fund Advisors entered the ETF market last year with
Grayscale intends to convert each product into a digital currency ETF.
Year-to-date net inflows are higher than the full year 2020 record net inflows.
Record year-to-date net inflows have beat the prior record in YTD 2017.