Actively managed exchange traded funds (ETFs) are required to be transparent. That hasn’t always settled well with active managers, so they’re finding different ways to surmount the hurdles.
The Securities and Exchange Commission (SEC) has mandated that active ETFs are to disclose their holdings with a one-day lag. Some active managers have been discouraged by this requirement, fearful that it might result in front-running of their funds.
Shishir Nigam for Active ETFs recently noted a few of the ways some funds are dealing with the regulatory requirements:
1. Going the fund-of-funds route. AdvisorShares Dent Tactical (NYSEArca: DENT) and Mars Hill Global Relative Value (NYSEArca: GRV) are two examples of the approach. They disclose the ETFs the funds own each day. It’s more challenging for a front-runner to do it with ETFs rather than in individual securities. [Active ETFs And The Bid-Ask Spread.]
2. Market-on-close (MOC) trading. Some managers will use market-on-close instead of trading intraday. The benefit is two-fold: the portfolio manager gets the closing price, and liquidity is greater at MOC. AER Advisors, the sub-advisors for PowerShares Active AlphaQ (NYSEArca: PQY) and PowerShares Active Alpha Multi-Cap (NYSEArca: PQZ), takes this approach.