Tidal plans to convert separately managed account into an ETF

Tidal Financial Group, the white-label ETF issuer, plans to guide a separately managed account through the complex process of converting to an actively managed transparent ETF, a regulatory filing shows.

Tidal on Wednesday registered the Days Absolute Return ETF, which will be launched by converting an SMA that has been offered since November 2018, the filing states.

Tidal is the umbrella brand for several affiliated firms, including Toroso Investments, which will serve as the forthcoming ETF’s investment adviser, the filing notes. A newly formed adviser, Days Global Advisors, will subadvise the ETF.

Mutual fund-to-ETF conversions have garnered a lot of attention since Guinness Atkinson did the first one in March 2021. While not new, SMA-to-ETF conversions have received less attention — but it is also a quickly growing area, said Gavin Filmore, Tidal’s chief operating officer.

The RBB Fund, Red Gate Advisers and Stance Capital, an ESG subadviser, for example, in March 2021 converted 25 separately managed accounts into an active nontransparent ETF. The ETF, the Stance Equity ESG Large Cap Core ETF, was recently acquired by Hennessy Advisors and renamed the Hennessy Stance ESG Large Cap ETF. The fund has $42mn in assets, according to Morningstar.

Tidal is in discussions with about 50 registered investment advisers about either converting SMAs to ETFs or launching ETFs that essentially duplicate the strategies of existing SMAs, Filmore said.

“[T]here’s going to be a massive amount of this,” he said.

The new ETF will be a fund of ETFs, according to the filing. All of the product’s assets will be invested in unaffiliated ETFs that invest in US and foreign equities, bonds, commodities and other securities. The ETF may also invest in inverse or leveraged ETFs.

The ETF will generally have net exposure of 20 per cent short to 100 per cent long, the filing notes. It will gain short exposure through investments in inverse ETFs.

Filmore declined to comment on the assets under management in the SMA that will be converted.

The disclosure does not list the fees for the Days Absolute Return ETF, nor its exact launch date.

Clients are interested in converting SMAs to ETFs because of the vehicle’s greater tax and operational efficiencies, Filmore said. Having an ETF can also bring RIAs a certain “notoriety”, he added. “They get new customers for their wealth management business because they have an ETF.”

Tidal, which describes itself as an “all-in-one ETF investment and technology platform”, in October announced a $32mn investment led by private equity firm FTV Capital, which focuses on financial services and technology companies. Its advisory and subadvisory clients include Amplify, Armada ETF Advisors, Asymmetric ETFs, Formidable, Iconic Capital Management and Leatherback ETFs.

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