NextShares exchange-traded managed funds are a new way to invest in actively managed strategies.
  • Because they are actively managed, NextShares offer the potential for benchmark-beating returns by applying their manager’s proprietary investment research.
  • Because they trade on an exchange, NextShares may offer cost and tax efficiencies that can enhance shareholder returns.

Bottom line: NextShares are the next evolution of fund investing™.

How do the
costs of NextShares compare?

Compared to a mutual fund with the same strategy and portfolio management, a NextShares fund can offer cost advantages that can translate into improved fund performance.

No distribution and service (12b-1) fees. Unlike many mutual funds, NextShares offer investors a single share class with no embedded distribution and service fees.
Lower fund transfer agency expenses. Because NextShares are exchange-traded, their transfer agency expenses – the costs of administering shareholder accounts – are lower than for most mutual funds.
Lower flow-related trading costs. NextShares can keep the trading costs associated with shareholder inflows and outflows low.
Less cash drag. NextShares generally don’t need to hold a significant reserve of cash to accommodate shareholder withdrawals. That means more of an investor’s money can be put to work in pursuit of returns.

For more detailed information comparing Nextshares to mutual funds, click here.

Bottom line: NextShares' cost savings offer the potential for improved investor outcomes.

Fund costs explained.

NextShares, mutual funds and ETFs are subject to different fund costs that impact investor returns.

  • What are distribution and service (12b-1) fees?
    Fund payments to support the distribution of fund shares and the provision of shareholder services under Rule 12b-1 of the Investment Company Act of 1940. A fund’s 12b-1 fees are typically paid to the fund’s distributor and generally pass through to intermediaries that sell fund shares. Permitted 12b-1 fees are limited to one percent of average fund net assets annually. Mutual funds are often subject to 12b-1 fees that vary by share class. NextShares, and most ETFs, do not pay 12b-1 fees. A fund’s 12b-1 fees are disclosed in its prospectus and included in its total expense ratio.
  • What are transfer agency expenses?
    The fees paid by a fund to its transfer agent and other intermediaries to process shareholder transactions and maintain shareholder accounts. Transfer agency costs are normally the largest component of mutual fund expenses other than management fees and 12b-1 fees. NextShares and ETFs typically have minimal transfer agency expenses. Transfer agency fees are characterized as "other expenses" in a fund's prospectus and are included in its total expense ratio.
  • What are flow-related trading costs?
    The trading costs a fund incurs to purchase and sell investments in connection with shareholder inflows and outflows, including commissions, bid-ask spread (i.e., difference between the best offer price to sell a security and the best bid price to buy the security) and market impact (i.e., the effect of a purchase or sale of a security on its trading price) costs. Flow-related trading costs are not disclosed in a fund's prospectus or reflected in its total expense ratio.

    NextShares keep flow-related trading costs low by issuing and redeeming shares primarily in kind (using securities and other noncash payments) and by charging transaction fees to "Authorized Participants" (professional investors who transact directly with the fund). Most mutual funds do not issue or redeem shares in kind or charge transaction fees.
  • What is cash drag?
    The impact on fund performance of holding cash. Cash drag hurts fund performance when the returns of the fund's noncash investments exceed cash returns, and helps fund performance when the opposite is true. Cash drag is not disclosed in a fund's prospectus or reflected in its total expense ratio.

    NextShares that transact with Authorized Participants primarily in kind may experience less cash drag than mutual funds, which often need to hold cash to meet shareholder redemptions.
  • What is a fund’s total expense ratio (TER)?
    A fund's total annual expenses expressed as a percentage of the fund's average net assets for the year, as stated in its prospectus. Fund TERs include management fees, 12b-1 fees, custody charges, transfer agency fees and other operating expenses of the fund. TERs do not include flow-related trading costs or cash drag. TERs also do not reflect fund sales charges or other costs borne by buyers and sellers of shares. Compared to mutual funds that can be purchased and sold at net asset value, NextShares and ETFs may be more expensive to buy and sell.
How can NextShares potentially reduce fund capital gains distributions?

Mutual fund investors can get hit with big tax bills, whether or not their funds increase in value.

Mutual funds are frequently forced to sell securities they own to meet withdrawals by fund shareholders. Sales of fund positions at a gain can trigger capital gains distributions – and associated taxes – for the fund's remaining shareholders. In fact, sales to meet investor outflows are often a leading cause of fund capital gains distributions.1

NextShares work differently. When NextShares investors sell their shares, they don’t normally transact with the fund; instead, they trade through a broker to sell their shares to someone else. Buyers may include other longterm investors or professional traders acting as market makers in the fund's shares. Because the NextShares fund itself is not involved in these transactions, the fund isn't required to sell securities to raise cash – so no capital gains distributions are triggered for remaining fund shareholders.

When market makers and other large investors accumulate sufficient shares of a NextShares fund, they can redeem their shares from the fund by transacting through intermediaries called Authorized Participants. Here too, NextShares work differently than mutual funds. Like ETFs, most NextShares funds meet redemptions through Authorized Participants primarily in kind, 2 meaning that the fund distributes current portfolio holdings of securities rather than cash. By avoiding the sale of securities to meet redemptions, NextShares can potentially reduce fund capital gains distributions and associated shareholder taxes. The enhanced tax efficiency that NextShares may provide can be a meaningful source of improved investor outcomes.

Bottom line: NextShares can reduce fund taxable gains.

  1. A fund’s investment strategy and portfolio turnover rate are other important determinants of the frequency and amount of its capital gains distributions. Fund distributions of net short-term capital gains are generally taxable as ordinary income; distributions of net gains from investments held by the fund for more than one year are generally taxable at long-term capital gains rates. The tax character of fund distributions is determined and provided to shareholders after the end of each calendar year. In addition to capital gains distributions, fund distributions may include nonqualified ordinary dividends (taxed at ordinary income tax rates), qualified dividends (taxed at rates applicable to long-term capital gains if holding period and other requirements are met), exempt-interest dividends (not subject to regular federal income tax) and nondividend, or return of capital, distributions, which are not subject to current tax.
  2. A NextShares fund’s redemptions may be effected partially or entirely in cash when in-kind delivery is not practicable or deemed not in the best interests of fund shareholders.
  3. As of March 31, 2016. Based on the mutual funds included in the Lipper large-cap, multicap, midcap and small-cap domestic equity categories and using the highest individual federal income tax rates in effect each year. Actual after-tax returns depend on a shareholder’s tax situation and may differ from those shown. After-tax returns are not relevant for shareholders who are not subject to tax or hold fund shares in tax-deferred accounts.
  4. Source: Morningstar, Inc. Includes all domestic, international and global U.S.-registered equity mutual funds tracked by Morningstar.

Tax efficiency can have a meaningful impact on investor returns.

  • According to recent Lipper data, shareholder income and capital gains taxes resulting from fund distributions reduced annual returns of actively managed U.S. equity mutual funds by an average of 1.15% over the past 10 years and 2.23% over the past three years for individual investors in the highest tax bracket.3 That excludes state and local taxes and the taxes paid when shareholders sell their positions.
  • Average capital gains distributions for equity mutual funds equaled 8.5% of fund net assets in 2015 — more than twice the 3.9% incurred in 2012.4
How do NextShares

NextShares can invest in all the same strategies and asset classes as mutual funds. NextShares funds may include equity, income, alternative and multi-asset funds managed in a wide range of active styles.


NextShares may replicate the strategies of their managers’ mutual funds or employ strategies offered exclusively as NextShares. Different from most ETFs, NextShares are actively managed and seek to exceed the returns of their performance benchmark and peer funds.

NextShares are designed for long-term investors who seek active portfolio management with structural cost and tax efficiencies.

Bottom line: Investors will have access to a broad range of investment strategies.

NextShares, mutual funds and ETFs are purchased and sold differently and have varying costs. These and other distinctions may result in significant differences in investor returns.

How do I buy and sell NextShares?

There is nothing complicated about investing in NextShares.

NextShares list and trade on Nasdaq and are priced at the fund’s next end-of-day net asset value (NAV), plus or minus a trading cost determined when the trade executes.1 Trading costs are fully transparent and can be controlled using limit orders.

Transactions in NextShares may be subject to selling commissions and other trading costs. As a new type of fund, NextShares may be offered initially by a limited number of brokers.


Bottom line: Buying and selling NextShares is straightforward.

  1. Buyers and sellers of share amounts of NextShares will not know the value of their purchases and sales until after the fund’s NAV is determined at the end of the trading day.
  2. Not all broker-dealers offering NextShares may accept dollar-based orders. In share-based orders, you specify the number of fund shares to buy or sell.

Know what you pay to buy and sell

Investor trading costs are the costs you pay to buy and sell a fund. These include the commissions, sales charges and other fees in connection with the transaction, and the difference between the executed trade price and the corresponding fund value (the amount of premium/discount) when the trade is priced.

Because all NextShares trading prices are directly linked to NAV, buyers and sellers of NextShares always know exactly what they pay in trading costs. By contrast, ETF investors typically cannot measure their trading costs because they don’t have access to a reliable measure of underlying fund value at the time of trade execution.

What kinds of investors are NextShares designed for?

NextShares are designed for investors who seek:

  • Professional, active portfolio management
  • Long-term investments
  • The potential for better performance through structurally lower costs
  • The potential for lower capital gains taxes

NextShares are not suitable for frequent traders.

Bottom line: NextShares have wide investor appeal.


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