Blue Tractor offers the only active ETF wrapper that puts you in full control
All the benefits of an ETF – while still shielding your trading strategy
Unlike a fully transparent active ETF, with Blue Tractor your actual portfolio is never disclosed daily to the market.
Rather, our cloud-hosted algorithm scrambles the weightings of your ETF portfolio, generating a Portfolio Reference Basket which is published daily to the market instead.
Offering the right amount of transparency is critical
Transparency is an essential component of the ETF structure but with full transparency the market can see your exact portfolio and every trade you make and you leave yourself open to front-running and reverse engineering of your strategy.
Without some transparency however, Market Makers and Authorized Participants (APs) cannot efficiently hedge their risk exposure, exchange pricing becomes inaccurate, ETF spreads widen and liquidity reduces. It becomes a product no RIA would want to place their clients in.
The solution is the Blue Tractor Shielded Alpha® ETF wrapper with its cloud-hosted Portfolio Reference Basket workflow:
Actively manage your portfolio with confidence knowing that your proprietary alpha generation strategies remain shielded from third parties at all times
Generate Portfolio Reference Baskets (a.k.a. Creation Baskets) that Market Makers and APs can hedge and price with absolute confidence
Simple to use turnkey operational workflow
The result is an ETF with tight spreads, consistent liquidity and a compelling actively managed investment thesis; a product that RIAs will want to allocate into client accounts.
For you this means significantly enhanced asset raising without giving away your trade secrets.
That’s why we called it the Shielded Alpha® ETF wrapper.
And you retain all of the benefits of the ETF structure:
- Lower costs
- Tax efficiency
- Intra-day liquidity
How does the Shielded Alpha® wrapper work?
Blue Tractor’s Shielded Alpha® wrapper is the only solution giving full control to the portfolio manager.
Blue Tractor’s cloud-hosted algorithms apply advanced mathematics to generate ETF Portfolio Reference Baskets that provide the necessary level of transparency to Market Makers and APs, while punishing any predators that attempt to front-run or free-ride a portfolio manager’s active strategy.
And the Blue Tractor Shielded Alpha® wrapper features SEC-approved “Custom” Baskets, making it easy for a portfolio manager to reduce trading costs and efficiently manage capital gains taxes.
Protecting & Never Disclosing Your Active Strategies
Obscuring actual holdings
Actual position sizes are always shielded.
Following the close of trading, the ETF portfolio is uploaded to the Blue Tractor cloud and the Shielded Alpha® algorithms scramble the ETF portfolio weightings to generate a Portfolio Reference Basket for next day’s market trading.
The scrambled portfolio weightings follow no pattern and randomly change every day, preventing front-running, free-riding and reverse engineering, while still allowing Market Makers and APs to price, confidently hedge and provide consistent liquidity in all market conditions.
Activity within the portfolio is always hidden from the market
Increasing a portfolio position in stealth
When increasing a current portfolio position, managers can instruct the algorithm to restrict the security’s weighting in the public Portfolio Reference Basket to within a specific range, completely masking from the market that the actual portfolio position is being increased.
Trimming or exiting a portfolio position in stealth
Using the same Blue Tractor cloud tools, managers can maintain the size of a position in the Portfolio Reference Basket while they trim or exit the position in the actual ETF portfolio. As long as at least one share is held in the portfolio, it can be represented in the Portfolio Reference Basket.
Initiate brand new positions and never get front-run
With Blue Tractor it’s easy to initiate brand new portfolio positions without fear of front-running. One simple strategy when initiating a new position is to additionally purchase a single share of a few securities with similar factors and use the cloud tools to restrict the weightings of all of these new securities to 1 basis point in the Portfolio Reference Basket. All the market will see are new security positions at 1 basis point; however no predatory trader can determine which security is the actual new position and which are simply being used as subterfuge. Once the allocation for the actual new position is filled, sell the unwanted securities and release the weighting restriction in the Portfolio Reference Basket.
Always keep predatory traders off-balance
Phantom trading dynamics in the Portfolio Reference Basket ensure that predatory observers are always kept in the dark regarding the manager’s true intentions. With just a few clicks of their mouse, a manager can adjust the security weightings in the published Portfolio Reference Basket to make predators believe that the ETF is initiating a new position or exiting from one, when in fact nothing could be farther from the truth!
The end result?
Predators can never front-run, free-ride or reverse engineer the actively managed portfolio because the trading dynamics they observe in the daily published Portfolio Reference Basket do not reflect what is really happening in the undisclosed, actual ETF portfolio.
Using the Blue Tractor ETF wrapper, the only time your actual portfolio is ever disclosed is in your quarterly filings with the SEC – just like a traditional mutual fund.
Blue Tractor’s “Custom” Baskets - Managing tax liabilities and reducing trading costs
The Blue Tractor ETF wrapper is SEC-approved to employ “Custom” Baskets. These are not the regular daily published Portfolio Reference Basket – instead, “Custom” Baskets offer the ability for the portfolio manager to trade privately in the capital markets.
“Custom” Baskets are special-purpose Creation and Redemption Baskets negotiated between the ETF and one or more preferred APs.
Use the Blue Tractor ETF “Custom” Baskets to accrue benefits to your active portfolio that neither the traditional mutual fund wrapper or SMA structure can offer.
Without the ability to utilize “Custom” Baskets you lose some of the greatest benefits of the ETF wrapper.
Manage Capital Gains When Rebalancing Your Portfolio
When ready to trim or sell out of a position that has performed well, use a “Custom” Basket to rid the ETF of these low-basis, high-gain securities by undertaking an in-kind swap with an AP for new securities the portfolio manager wants. Doing so preserves the value bump without triggering a taxable gain because no securities were actually sold. Ridding the ETF of capital gains means never having to send out 1099-DIV forms to investors either.
Reduce Trading Costs To Increase Your Edge
Use a “Custom” Basket to effect large block or rebalance trades at the time of the portfolio manager’s choosing. Populate the “Custom” Basket with securities not currently in the ETF portfolio and have an AP deliver them into the fund during a “Custom” Creation without incurring normal-course portfolio trading costs.