When the SPDR S&P 500 ETF Trust (SPY) debuted around 20 years ago, it changed the game — for the better. The creation of the world’s first exchange-traded fund (ETF) gave both pros and average Joes access to low-cost diversity that you could trade in a flash, and opened up a category that now spans more than 1,500 ETFs across numerous asset classes and strategies.

That innovation might have taken a step back with the Securities & Exchange Commission’s recent approval for fund manager Eaton Vance Corp. (EV) to begin offering exchange-traded managed funds (ETMFs) to investors.

The problem is, these ETMFs are complex, “non-transparent” offering that basically remove one of the best things about ETFs — knowing exactly what you own.

Which is exactly why investors should probably stay away.

The Danger of ‘Front Running’

For investors in traditional active mutual funds, the hurdle has always been that the fund’s net asset value (NAV) is calculated at the end of the day on a basket of assets that aren’t really known. Remember, traditional mutual funds report their holdings quarterly.

However, ETFs can offer daily tradability as well as transparency of holdings — you know every day what you’re holding. Which is fine for an index ETF like the SPY, but can be something of a drag for actively managed ETFs.

The problem is that said transparency actually hinders managers — who prosper by making actual stock picks — thanks to an issue known as “front running.” At its core, front running refers to the procedure of buying or selling a position solely based on anticipated movements of a large buyer/seller in that position to generate a profit.

For example, you might buy XYZ Corp. because you know Carl Icahn’s fund is buying XYZ Corp.

And while you make think this reeks of insider trading, front running is a different animal — mostly based on suspicion and public documents — and in many cases 100% legal. Front running is such a huge issue at Berkshire Hathaway (BRK.B), that Warren Buffett has special dispensation from the SEC when it comes to reporting its holdings when it’s building out a new position.

In the case of active ETFs, the daily reporting basically provides a window into what a manager is doing. If it takes multiple days to create or liquidate a position, the daily holdings will reflect that. Anyone with access to the ETFs website can basically front run a successful fund.

At the end of the day, front running can zap an active ETF’s returns since it now has to pay more for shares it would have acquired thanks to higher demand.

So in an effort to combat this problem of front-running, mutual fund sponsor Eaton Vance has filed and recently gain approval for what it calls exchange-traded mutual funds (ETMFs), and it plans issuing 18 of these products over the next year.

Dubbed NextShares, these ETFs will not be required to disclosure their holdings daily, but quarterly like regular mutual funds. Also like regular mutual funds, the ETMFs will true-up their NAVs at the day end. That should help shield Eaton Vance and its managers from potential front running conflicts. Meanwhile, investors enjoy the benefits of owning regular ETFs.

Sounds awesome, right? Maybe … but nothing in life is free.

That non-transparency comes at a price — namely in how these ETMFs are going to be traded. To buy a regular mutual fund, you place your order, then at the end of the day the fund company figures out the NAV and how many shares you bought for your money. When you buy an ETF, the NAV is known throughout the day, and you buy X shares at that NAV.

But what about a daily trading vehicle in which you have no idea what the NAV actually is?

Under EV’s new ETMF structure, investors will place trades at net asset value (NAV) plus/minus a premium/discount to that NAV. So you’ll see quotes like -$0.01 or +$0.02. These are determined by the supply/demand of the fund’s shares. That’s an entirely new way of thinking about trading. For example, you place an order to buy shares, and they’re currently trading at NAV +$0.02. At the end of the day, the NAV is $20, so you would pay $20.02 per share. But remember: Your actual transaction will go through at the end of the day when that NAV is determined.

Too Complicated & Confusing

Still scratching your head? Me too. It’s a fairly confusing construct. Making a stab at the NAV and whether buying it at premium or discount is worth it, is kind of a lot of regular investors to take in. You could get screwed — especially if he market is in turmoil.

And let’s not forget they are actively managed vehicles.

Potentially “game-changing” fund structure or not, if the manager of the fund sucks, it’s not going to matter. As we’ve seen time and time again, most active managers stink with regards to beating their benchmarks over the long haul. I’m not picking on Eaton Vance’s funds in particular — that’s just a matter of fact for the entire industry and is one of the reasons why passive ETFs have surged in popularity in the first place.

As for the reduced costs that NextShares’s promises, they’re there — if you are prone to buying expensive mutual funds. But many quality mutual funds are available with low expense ratios and zero 12b-1 fees.

Bottom Line

Eaton Vance’s ETMFs have been called a “game changer” by at least one player in the industry, but don’t count on it. These are complex animals that might find a niche, but won’t take over regular retail investors’ portfolios.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.