Mega fund manager Legg Mason has filed with the U.S. SEC for permission to create index-tracking ETFs, a first step in building its own ETF business.

In a statement on Wednesday of last week, Legg Mason commented that its application is “the next step in building the organizational structure to offer a suite of passively and actively managed ETFs.”

Analysts point out that Legg Mason managed to entice two execs (Rick Genoni and Brandon Clark) from the Vanguard Group’s ETF business (second largest worldwide) to join the firm back in the first quarter of this year. The two men are expected to play critical roles in Legg’s plan to develop a portfolio of ETFs.

Excerpt from Legg Mason SEC filing

“The Initial Fund will be an Equity Fund whose performance will correspond generally to the performance of a securities index developed by a third party (the ‘Initial Underlying Index’),” notes the filing. “Each Fund will seek to provide investment returns that correspond, before fees and expenses, generally to the performance of a specified equity and/or a specified fixed income securities index (each an ‘Underlying Index’ and collectively, ‘Underlying Indexes’).”

Looking to develop Smart Beta ETFs

The mutual fund giant also pointed out in its filing that the index exchange-traded funds are going to be “better beta,” which appears to suggest the firm will be developing so-called Smart Beta investment strategies that track exotic underlying indexes. If the SEC says yes, for example, Legg Mason’s new Smart Beta funds could establish short positions.

Of note, Legg was initially granted approval for actively managed ETFs back in 2012, but it hasn’t launched any as of yet. Also of interest, sixteen of the top 25 mutual fund families have not yet launched their their own ETFs. Of course, official permission from the SEC is the first step in the process

Legg Mason has more than $703 billion in assets under management as of June 1st, and sells funds produced by several affiliate brands such as Western Asset, ClearBridge Investments and QS Investors.

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