NextShares, mutual funds and ETFs are subject to different fund costs that impact investor returns.
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.
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.
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.
Each of the below companies has entered into a preliminary licensing and services agreement to permit the offering of NextShares. Additional fund managers are also expected to offer NextShares. Learn more.
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.
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.
NextShares are not suitable for frequent traders.