NYSE Active ETF Updates

Q&A with Summit Global Investments

This week we sit down with David Harden at SGI to discuss the company’s views and support of the active ETF market.

Summit Global Investments (SGI) has long been a mutual fund and separately managed account (SMA) manager serving institutions, RIAs, family offices and individual investors using its “Managed Risk Approach.” What led to the decision to enter the active ETF market in 2023?

As an investment manager we strongly felt that now is the right time to have a core ETF that incorporates downside risk management for investors. We also believe that the best vehicle to allow investors this core exposure and actively managed investments is an ETF. ETFs provide the opportunity to have greater cost efficiency, liquidity and flexibility (ETFs trade throughout the trading day – providing investors with flexibility to enter or exit positions quickly, unlike mutual funds that are typically priced and traded once per day) and tax efficiency (ETFs have a unique creation and redemption process, which helps minimize capital gains distributions and may reduce tax liabilities). In addition, ETFs are easily accessible through brokerage accounts, making them quickly available to investors.

While separately managed accounts (SMAs) and mutual funds have their own advantages, we believe launching our active semi-transparent ETFs helps investors have the best of both worlds.

SGI is unique in offering active ETFs that allow an asset manager the flexibility to protect their valued research perspectives. Why did you choose to license both the NYSE Active Proxy Structure and the Blue Tractor Shielded Alpha ETF wrapper?

Both wrappers have advantages and disadvantages. Understanding these helps us put the best strategy in the most effective structure/wrapper. With both wrappers, we seek to provide liquidity and transparency to the ETF community that further benefits investors with small bid/ask spreads and trading efficiency coupled with protecting investors through our unique managed risk approach to investing. With the Blue Tractor and NYSE wrapper/structure we are able to align and tailor our investments to the expectations and advantages of each while minimizing or eliminating the disadvantages.

As an asset manager, what benefits and/or nuances come with operating an active ETF product line-up compared to other investment wrappers (i.e., mutual funds, CITs, etc.)?

ETFs provide the opportunity to have greater cost efficiency, liquidity and flexibility (ETFs trade throughout the trading day – providing investors with flexibility to enter or exit positions quickly, unlike mutual funds that are typically priced and traded once per day) and tax efficiency (ETFs have a unique creation and redemption process, which helps minimize capital gains distributions and may reduce tax liabilities). In addition, ETFs are easily accessible through brokerage accounts, making them quickly available to investors.

While other investment wrappers (separately managed accounts, mutual funds, etc.) have their own advantages, we believe launching our active semi-transparent ETF helps investors have the best of both worlds.

What are the key considerations investors should contemplate when considering actively managed ETFs?

Investors may want to consider several factors when researching an actively managed ETF. Beyond whether the style, strategy and risk the ETF may provide and how the specific strategy incorporates an investor’s objectives, goals and risk tolerance, other factors may include how the philosophy and ability of the manager intertwine with those of the investor. Does the investor care about long-term over short-term or up market versus down market protection? Does the investment managers approach make sense or is it clear to an investor? Lastly, how does the approach resonate or how is it incorporated by the investor?

What guidance would you provide sponsors as they consider expanding their product offerings to include actively managed ETFs?

ETFs have various phases and connection points. Behind the scenes makes a difference. Partnerships make a difference. The liquidity of the ETF and spread (the variable between the bid and ask each investor will have to ‘hurdle’ or substrate from any potential gain). These factors and others that must and do occur within the connection points of the ‘day in the life’ of an ETF make it critical that ETF investment managers partner with the best and use principles of diversification when considering exchanges, structures, APs, Market Makers, traders, etc. (the ETF community) to help ensure investors win.