Active non-transparent ETFs (ANTs) could be just the refresher active management needs to regain lost luster in this new era of funds investing.
Mutual fund companies wanting to get into the ETF game now have the ability to offer their brand of active management in an ETF wrapper without having to lift up the hood every day to show the intricacies of their strategy.
With more traditional mutual funds eyeing the ETF space but remaining reluctant to give up their secret sauce under the transparency of the ETF investment vehicle, many are looking into non-transparent exchange traded products as a way to combine the best of two worlds.
“A nontransparent ETF is an exchange-traded fund that — unlike traditional ETFs — would not disclose what its actual holdings are on a daily basis,” reports CNBC. “Instead, some non-transparent ETFs will publish a portfolio with other stocks that is representative of the underlying strategy. Other nontransparent ETFs will make their holdings available without giving the away the exact weighting of each holding.”
The semi-transparent nature should help issuers protect their managers’ investment style from potential front-runners that would seek to undercut the more transparent nature of the ETF investment structure.
Through these semi-transparent or non-transparent ETF structures, money managers will feel more open to adapting traditional fund strategies into the more efficient ETF wrapper, potentially opening the start of a greater transformation in the fund industry as more active managers consider ETFs.
“Previously, traditional mutual-fund managers have been hesitant to put their strategies into ETFs because they were afraid others would learn how they are trying to get their edge versus the broader market,” according to CNBC. “However, actively managed equity mutual funds have been losing assets for 14 straight years as investors allocate more money towards ETFs. These new, nontransparent ETFs could finally bring the active manager up to par with traditional ETFs, but it could take some time before people embrace the idea.”
Data confirm ANTs could be the next big thing in the fund industry because there’s a big pie of assets out there that could flow to these products.
“Actively managed U.S. equity mutual funds have lost more than $1.6 trillion in assets under management since 2006, data from Morningstar Direct shows. In that time, ETFs have seen inflows of just over $1 trillion,” reports CNBC.
For more on active strategies, visit our Active ETFs Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.