Active non-transparent ETFs (ANTs) are increasing in number and some data points confirm the asset class is making inroads with financial advisors.
With 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.
“These funds allow managers to build ETFs with holdings not seen by the public. This is a way for mutual fund companies, which actively try to beat indexes by picking individual securities, to offer ‘active ETFs’ without showing their hands,” reports Matthew Krantz for Investor’s Business Daily (IBD).
The rise of these non-transparent ETFs, though, should breathe some new air into a stagnant actively managed ETF segment. According to Morningstar data, passive ETFs have accumulated $4.4 trillion in assets under management as of January, but active ETF assets only held $150 billion in assets, compared to assets in active open-ended funds excluding ETFs that amounted to $24 trillion.
The Allure of the ANTs
ANTs “are actively managed exchange-traded funds that disclose their holdings quarterly instead of daily. This gives portfolio managers a chance to use their strategies in cheaper alternatives to mutual funds without running the risk of being copied or front-run,” according to ETFdb.com.
ANTs also feature different mechanics than traditional, passive ETFs.
“Most ETFs now mostly hold investments in baskets, called creation units, which own all the securities in publicly available indexes. Investors know what’s in the creation unit. And that means they know what the unit is worth. That knowledge is one reason why ETFs are so efficient and trade so close to the value of the stocks they hold,” according to IBD.
Constructed similarly to flagship investment strategies that have served clients well for decades, the active ETFs use the same portfolio managers as their corresponding mutual funds and employ the firm’s long-standing strategic investing approach, characterized by rigorous research, risk awareness, and independent decision making.
“More knowledge is generally better in investing, so what’s the draw of nontransparent ETFs? Many of the large mutual fund companies that use stock and bond pickers have been left out of the bursting popularity of ETFs. They see non-transparency as a way into the ETF party,” according to IBD.
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.
