“We see non-transparent active ETFs as an alternative vehicle for potentially delivering our investment management expertise to investors, without the prospect of daily disclosures impacting our existing mutual fund shareholders, consistent with their best interests,” T. Rowe spokesman Bill Benintende said in the article.
Transparency has been a sticking point among actively managed mutual fund providers, especially in equity portfolios. Active equity portfolio managers are more wary about potential front running due to daily disclosures. In fixed-income portfolios, transparency is not as demanding since it is very difficult to trade ahead of an institutional investor in the credit market and the portfolios hold thousands of individual securities.
The PIMCO Total Return ETF (NYSEArca: BOND) has been a successful active bond fund adaptation that has helped propelled interest among mutual fund providers looking into the ETF space.
Larry Petrone, director of research at kasina, argues that T. Rowe’s offerings would only stand a chance if clients demand the same strategies but in the more efficient ETF investment structure. However, he points out that while the ETF structure is cheaper, the new arbitrage mechanism could push up costs.
“The only reason I could see right now is if firms are convinced the end client is demanding the ETF format because of the expectation of lower fees,” Petrone said in the article.
For more information on the mutual fund industry, visit our mutual funds category.
Max Chen contributed to this article.
