Active non-transparent ETFs (ANTs) are the fund industry’s new kids on the block and with that status comes plenty of questions from the advisor community regarding how to properly deploy these products within client portfolios.
Advisors are looking critically at traditional market indexes and the challenges of navigating today’s new market environment.
“Semi-transparent and non-transparent ETFs have become the buzz words for active managers,” according to Ultimus Fund Solutions. “These not-fully transparent ETFs are intended to benefit the investment adviser by shielding proprietary portfolio composition from public view, and benefit the investor by providing access to active strategies at a lower cost with better tax efficiency potential.”
Integral to the success of ANTs are mechanics, such as the verified intraday indicative value (VIIV), which is calculated and disseminated every second throughout the trading day by the exchange the ANT trades on.
The VIIV is based on the current market value of the securities in the fund’s portfolio on that day. The VIIV is intended to provide investors and other market participants with a highly correlated per-share value of the underlying portfolio that can be compared to the current market price.
Another benefit of ANTs: Active managers will be allowed to move from a mutual fund to an ETF wrapper while allowing them to keep their strategies hidden from shareholders. These non-transparent ETFs would move the disclosure of portfolio holdings from a daily event to a quarterly one.
With about $8.6 trillion in assets residing in mutual funds and close to half of that allocated to actively managed products, there’s a potentially massive opportunity for mutual fund issuers looking to enhance or establish ETF footprints by using the active non-transparent structure.
The Securities and Exchange Commission recently approved the actively managed non-transparent ETF structure through the Precidian ActiveShares exempt relief filing in June 2019, allowing fund managers to disclose holdings on a quarterly basis or ultimately keeping holdings more confidential than with traditional transparent ETFs. This is seen as a way for active fund managers to better guard their secret sauce against front runners or would-be investors that would take advantage of an active fund manager’s investment methodology.
“What is apparent is that the new non-transparent ETFs will benefit both the investment advisers that were bypassed by investors for ETFs and ultimately the investors who can access more active strategies at a lower cost, with better tax efficiency and potential performance gains,” notes Ultimus Fund Solutions.
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.