One of the marquee developments in the fund industry in recent memory are the launches of active non-transparent ETFs or ANTs.
The new active non-transparent ETF products come with many of the same benefits we have enjoyed with traditional ETFs, but the new structure reduces the need for daily disclosures, which may help bring more stock-picking managers into the ETF space. Notably, ANTs address the issue of front-running as it relates to fund transparency.
“There are several structures that have been proposed and have been authorized for license by the SEC for use in ETFs. Each of the opaque structures avoids disclosing the actual ETF portfolio,” writes Kip Meadows founder and CEO of Nottingham, for AdvisorPerspecitves. “The most non-transparent structure does not publish its portfolio daily at all, instead adopting the open-end mutual fund reporting timeline of publishing its portfolio semi-annually. The most transparent of the structures publishes most of the actual holdings within its ETF but alters the asset allocation and percentages of holdings to conceal some of the portfolio decision-making.”
Understanding ANTs
Unlike standard ETFs, which are required to disclose their holdings daily, nontransparent ETFs will only be required to disclose their holdings once a quarter, giving active managers, who opt to keep their investing methods under wraps to avoid getting front-run, another vehicle through which they may execute their strategies.
Moreover, there’s an increasing number of reasons why advisors, asset allocators and wealth managers may want to consider this new fund structure.
“An active portfolio manager can see what might be over the horizon and react quickly to how a paradigm shift affects various investment securities and investment classes positively and negatively. Offering active investment strategies is an important differentiator for the wealth manager,” notes Meadows. “ANTS provide access to those active managers, which was not available in ETFs. Many active managers have avoided ETFs due to the transparency.”
Although ANTs are a new asset class, cost efficiencies are already apparent and that could serve to get more advisors and end-users in the door. Of the ANTs on the market today, each one carries lower fees than the retail share class of the equivalent mutual fund. ANTs could be a compelling middle ground between ETFs and old school active funds.
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.
