Exchange traded funds that don’t disclose holdings on a daily basis have been live on the investment scene since last year, bringing a fresh look to the world of active management.
The semitransparent nature helps issuers protect their managers’ investment style from potential front-runners that would seek to undercut the more transparent nature of the ETF investment structure.
“Semitransparent ETFs, which are also called nontransparent ETFs, are actively managed and provide limited and delayed disclosure of the full portfolio, but offer sufficient information to allow the ETFs to trade properly,” reports Ellen Chang for U.S. News & World Report.
In succinct terms, semitransparent ETFs help active managers keep their secret sauce a secret, while preserving certain elements of transparency.
“The first semitransparent ETF using both the New York Stock Exchange Active Proxy Structure and T. Rowe Price’s proxy model went public during the third quarter of 2020. The first 15 semitransparent ETFs raised more than $600 million in assets under management in 2020, demonstrating investor demand,” U.S. News reports, citing Douglas Yones, head of exchange-traded products at the New York Stock Exchange.
Another part of the allure with semitransparent ETFs is that it provides an avenue for active mutual fund issuers to get into the fast-growing ETF arena. Rather than introducing brand new products, the issuers adopt a new methodology and apply it to existing funds – many of which are successful in the traditional fund wrapper – making for easier entry to the ETF space.
See also: How Custom Baskets Could Revolutionize Semi-Transparent ETFs
Combining the distribution capabilities of established mutual fund issuers and rising demand for active strategies, semitransparent ETFs could be the next fast-growing corner of the ETF space.
“Assets in the active non-transparent category — known as ANTs — could reach $3 billion by the end of next year, Bloomberg Intelligence predicts. The funds have only attracted about $800 million so far, but companies that license the methodology hold a collective $1 trillion in assets, indicating a huge potential for growth,” reports Claire Ballenting for Advisor Perspectives. “Since launching in April (2020) as the coronavirus upended global markets, many of the ANT funds have outperformed peers, showcasing active managers who offer their strategies in an ETF wrapper without revealing all their secrets. They’ve had to overcome investors’ desire for transparency, varied performance records and, of course, a global pandemic.”
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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.
