IU: How will your ETFs deal with transparency issues?

Hamman: They'll be fully transparent on a daily basis. The portfolio manager will make trades on a daily basis and then the fund will disclose those trades before the opening of the next day's session.

IU: Doesn't that lend itself to somewhat stale data?

Hamman: That's a very good question. We plan to incorporate a patent-pending process that improves the ability for our ETFs to trade at a more efficient price. If we get approval, that might open up our ETFs to providing even more timely transparency—in other words, sometime before the end of each trading day. But our exemptive relief request is designed to proceed whether the patent is approved or not. So we could conceivably operate just like any existing actively managed ETF.  We think that providing more information to specialists and market makers can only help make a more efficient market that will keep bid/ask spreads tight.

IU: But aren't active managers wary of providing timely information on a daily basis?

Hamman: It's true, and some subadvisors out there won't find such a prospect appealing. For example, when illiquid markets like micro-caps are involved, transparency issues might be more of a concern to some managers. In general, though, we think that most investors aren't going to find it appealing to log on to a computer and track a portfolio that closely. We think there are fund managers who agree with us and don't see transparency as a competitive disadvantage. They see transparency as more of a positive than as more of a negative. 

IU: How do transparency issues work with active mutual fund managers in actively managed ETFs?

Hamman: The managers who are going to be the most concerned about transparency issues probably will turn out to be very active traders rather than investors. And again, they're more likely to be people who work in more illiquid parts of the market. Practically speaking, I don't think creating good, smart, actively managed ETFs precludes finding the best investment managers.

IU: What does Fund.com plan to do going forward?

Hamman: Their expansion plan is to make more strategic investments in asset managers and platforms, both in ETFs as well as mutual funds. Their focus also includes hedge funds, variable insurance funds and any sort of pooled investment. Besides those activities, Fund.com plans to create original content and provide expert third-party content for investors. They want to be able to do this as an investment community and bring a social networking aspect to their Web site. Their focus is that individual investors are under-served in terms of advice. So they want to be able to take data and wrap it into high-quality advisory content.

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