For fund firms, the allure of non-transparent ETFs is that the portfolio managers would be able to keep their trades a better secret, allowing managers to prevent front-running. However, these non-transparent ETFs need to pass muster at the SEC, and that could be extremely tricky. Even getting plain-vanilla index ETFs through the regulatory approval process involves a lot of time and legal fees.
“The only people who really see a need for nontransparent ETFs are mutual fund companies,” Rick Ferri, founder of investment advisory firm Portfolio Solutions LLC, said in the article. “In a lot of cases, they’re still smarting from a black eye with investors for not getting involved with this part of the market years ago.” [New Wave of Active ETFs Could Come from Mutual Fund Providers]
The ETF industry is still dominated by passive, index-based ETFs. There are 74 actively managed U.S.-listed ETFs on the market with $14.9 billion in assets, compared to the overall 1,548 ETFs with $1.7 trillion in assets.
For more information on active ETFs, visit our actively managed ETFs category.
Max Chen contributed to this article.