Manage the ETF Creation Basket
Fund advisors seeking to generate dual sources of alpha should consider managing both their actively managed ETF portfolio and the ETF Creation Basket. This will become the new normal for best-in-class active portfolio managers.
Blue Tractor's cloud platform equips fund advisors with easy-to-use tools to modify the daily generated Creation Basket in order to implement additional alpha generation opportunities during regular ETF creation and redemption activity. Through what Blue Tractor terms basket management, fund advisors can modify one or more securities' weightings in the Shielded Alpha℠ Creation Basket to (1) eliminate trading costs and (2) enhance portfolio tax efficiency. Moreover, these same basket management tools are used to (3) fully cloak portfolio trade execution when entering into a new position or exiting from one.
Blue Tractor's cloud platform equips fund advisors with easy-to-use tools to modify the daily generated Creation Basket in order to implement additional alpha generation opportunities during regular ETF creation and redemption activity. Through what Blue Tractor terms basket management, fund advisors can modify one or more securities' weightings in the Shielded Alpha℠ Creation Basket to (1) eliminate trading costs and (2) enhance portfolio tax efficiency. Moreover, these same basket management tools are used to (3) fully cloak portfolio trade execution when entering into a new position or exiting from one.
Reduce Trading Costs and Boost Tax Efficiency Want to increase a current portfolio position but without incurring trading costs? Use Blue Tractor's basket management tools in the Shielded Alpha℠ cloud platform to overweight a security position in the Creation Basket (versus its actual portfolio weighting) and have an AP deliver more of that security to the ETF during the next in-kind creation transaction and all without incurring incremental trading fees. Has a portfolio position reached its target price? Harvest the capital gains tax efficiently by overweighting the lowest cost basis securities in the basket and during the next in-kind redemption transaction with an AP flush out the gains faster than can be done using a pro rata basket. Eliminating portfolio trading costs and enhancing capital gains tax efficiency translates into increase alpha returns for a fund advisor. |
Always Stay in Stealth Mode When Trading The Shielded Alpha℠ wrapper completely cloaks ETF portfolio trade execution from prying eyes. Seeking to build a new position in the ETF portfolio? "Freeze" that security weighting in the Creation Basket at a low % weighting over the next days or weeks while opportunistically increasing the actual ETF portfolio position until the target % weighting is reached. Then "unfreeze" that security % weighting in the Creation Basket - by then it's too late for any predator to front run or free ride the fund advisor's activity. Looking to exit a portfolio position? Simply "freeze" that security % weighting in the Creation Basket around its current portfolio weighting over the days or weeks required to unwind the actual position. The market cannot discern from the "frozen" Creation Basket % weighting that the fund advisor is in fact unwinding the position. Once fully exited "unfreeze" the security % weighting and it disappears from the next day's Creation Basket. |
The SEC's 2019 Rule Change (6c-11) for transparent active and index-based ETFs notably permits custom baskets, affirming that dynamic basket management can provide fund advisors with operational, cost and tax advantages over non-customizable pro rata creation baskets. Most industry observers expect rapid and widespread uptake of custom baskets.
Based upon this dynamic it's clear that any new SEC-approved ETF wrapper for active portfolio management that can only offer a static, pro rata basket to fund advisors for creation and redemption activity is at risk of obsolescence.
Based upon this dynamic it's clear that any new SEC-approved ETF wrapper for active portfolio management that can only offer a static, pro rata basket to fund advisors for creation and redemption activity is at risk of obsolescence.