Active non-transparent exchange traded funds (ANTs), or semi-transparent ETFs, give advisors another tool to work with to potentially bolstering client outcomes and the new fund structure is rapidly finding a receptive audience.
With ANTs being new on the fund industry, it’s important that end users understand how these new products function.
“Unlike traditional ETFs, the fund does not tell the public what assets it holds each day. Instead, the fund provides a verified intraday indicative value (VIIV), calculated and disseminated every second throughout the trading day by the Cboe BZX Exchange, Inc. (Listing Exchange) or by market data vendors or other information providers,” according to American Century.
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.
Complementing Existing Strategies
“ANTs have some obvious benefits over actively managed mutual funds – the ETF structure provides greater tax efficiency, lower costs, and intraday pricing,” reports CityWire. “These benefits led some analysts to suggest early on that some active managers might phase out mutual funds completely in favor of ETFs. But a complete pivot away from active mutual funds is unlikely. Both regulators and managers are taking a cautious approach that suggests that ANTs will remain alongside mutual funds without supplanting them completely.”
The semi-transparent nature should help issuers protect its 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.
For now, the ANTs structure is confined to equities and it could be some time before regulators sign off on expanding it to credit instruments.
“It was an eight-year process to get ANTs approved, so it’s unlikely that any and every strategy is going to get rubber-stamped without a few products in the market building a track record and attracting assets first,” according to CityWire. “This cautious approach is likely to forestall any great pivot out of active mutual funds and instead points to a gradual year over year shift.”
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.