Unlike other fund providers, Vanguard already reveals its stock ETF holdings at the month end, with a 15-day lag. [Why Vanguard Stock ETFs Are Slightly More Opaque]
While a number of actively managed ETFs also provide daily disclosures, many money managers have been loath to reveal their secret sauce through an active ETF offering. Consequently, more have been looking in to Eaton Vance’s exchange traded managed fund structure. [SEC Again Rejects Precidian Non-Transparent ETFs, Solidifying Eaton Vance Lead]
Meanwhile, the SEC has cautioned against the increased complexity of products and the rising growth of the more sophisticated ETFs, compared to traditional beta index-based ETFs.
“Most mainstream ETFs function exactly as they were designed to, but others, most often in the commodity space, can expose inherent limitations that the average person doesn’t understand,” Paul Schatz, president of Heritage Capital, told InvestmentNews, citing concerns related to contango and backwardation in the futures market. [Commodity ETFs That Know How to Navigate the Futures Market]
Additionally, a number of geared ETPs utilize options and futures to generate a daily leveraged or inverse return to an underlying index. Due to its daily rebalancing and compounding issues over longer periods, these leveraged and inverse ETFs may diverge from their intended strategy in the long-term or in more volatile conditions. [Do You Know How Your Leveraged ETFs Work?]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.