In Gotham, a Startup Plants the Seeds of a New Kind of Active ETF
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Thursday, October 06, 2016

In Gotham, a Startup Plants the Seeds of a New Kind of Active ETF

A duo from opposite sides of the Atlantic is working on their own take on how to fit actively-managed strategies inside an ETF shell without giving away PMs' secret sauce.

Terry Norman
Blue Tractor Group
Last week New York City-based Blue Tractor Group filed an amended exemptive relief request with the SEC, six months after Blue Tractor's initial request. The request is for a new kind of active ETF structure, which Blue Tractor calls the Shielded Alpha ETF.

Ottawa, Ontario-based Simon Goulet, co-founder of Blue Tractor, describes Shielded Alpha as a "100-percent algorithmic solution" that "seeks to obscure a fund's proprietary strategy" on a daily basis while using quarterly portfolio disclosures like in a traditional open-end mutual fund. Shielded Alpha, Goulet says, is designed to disclose at least 90 percent of the underlying portfolio while specific holdings and weightings are obscured. He contrasts that with some non-transparent active ETF structure ideas that use third-party intermediaries or a proxy portfolio in lieu of daily portfolio holdings disclosures.

Simon Goulet
Blue Tractor Group
The ball is now in the SEC's court.

"We are simply focused on providing the SEC with timely responses," Goulet tells MFWire.

Blue Tractor's latest SEC request confirms that Goulet and England-based Terry Norman, who founded Blue Tractor last year, aim to "enter into license agreements" with other fundsters interested in using the Shielded Alpha ETF structure, too.

"Traditional active managers continue to see share shift to ETFs," Goulet says. "It's fast becoming a strategic necessity for active fund managers to be able to offer clients something" ETF-like without giving away the secret sauce.

The Shielded Alpha structure could work for both equity and fixed income strategies, Goulet says.

As for the Blue Tractor name, the firm's website offers that "Terry Norman conceived the core concepts underpinning the novel algorithms that facilitate the Shielded Alpha Solution while riding a blue tractor cutting hay on his farm outside of London, England."

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