SEC Officially Signs Off on New Wave of Semi-Transparent ETFs | ETF Trends

Semi-transparent actively managed exchange traded funds, a fund structure pioneered Precidian Investments, took another step forward Tuesday when the Securities and Exchange Commission (SEC) approved a joint application for exemptive relief from Natixis Investment Managers and the New York Stock Exchange (NYSE).

“The SEC has approved the NYSE’s joint application with Natixis Investment Managers for exemptive relief under the Investment Company Act of 1940 for a proxy portfolio methodology to be licensed for the development of actively managed, non-transparent ETFs,” according to a statement issued Tuesday by the NYSE.

Last month, the SEC granted preliminary approval for Fidelity, T. Rowe Price, and Natixis’ active equity ETF to offer non-transparent active ETFs.

“Applications for 1940 Act exemptive relief from Fidelity Investments, T. Rowe Price and Blue Tractor were also approved today, meaning that four solutions now join the new marketplace established by Precidian Investments earlier this year,” said the NYSE on Tuesday.

Greg Friedman, head of Fidelity ETF management and strategy, said the SEC’s announcement on Tuesday was a huge milestone for the ETF industry.

“Fidelity’s approach to active equity ETFs is yet another example of our commitment to innovation and leveraging our exceptional investment management capabilities to meet investor’s changing needs,” Friedman said in a statement to ETF Trends. “Our deeply rooted history in research and active management lends Fidelity a strong foothold to step into the next chapter of the ETF industry.”

Friedman said in addition to manufacturing its own Fidelity active equity ETFs, they are excited to offer the opportunity to license its technology, which they believe is an industry leading approach.

“Fidelity’s active equity ETF technology is designed to operate seamlessly within the existing ETF market and provide customers with the greatest value and peace of mind,” he said.

The new type of ETF funds, which are often referred to as “semi-transparent” or “nontransparent ETFs”, are an investment vehicle that allows active asset managers to capitalize on the benefits of the ETF structure, including more-liquid trading and tax advantages, while keeping their strategy hidden to protect shareholders.

Plenty of Licensees

ActiveShares and BlueTractor’s Shielded Alpha allow asset managers to enter the ETF space with their own active strategies without worrying about others stealing their secret sauce.

Blue Tractor plans to offer semi-transparent funds under the Shielded Alpha methodology, which differs from ActiveShares. The Shielded Alpha structure deploys proprietary math to generate a published daily creation basket, based upon all the security names, that allows that allows an advisor’s alpha generation strategy and portfolio trading execution to remain fully opaque to predatory traders, fully eliminating the risk of reverse engineering and associated front-running.

Rather, its basket holds 100% of the actual portfolio names and there’s at least 90% asset value overlap (compared to 100% overlap with a pro rata slice) between the basket and the undisclosed actual portfolio, said Simon Goulet, Co-Founder of Blue Tractor.

Highlighting the allure of the semi-transparent methodology, ActiveShares has already been licensed by Legg Mason, BlackRock, Capital Group, JP Morgan, Nationwide, Gabelli, Columbia, American Century and Nuveen, among other big-name asset managers.

As of Sept. 30, 2019, Precidian had already licensed the products to 12 fund managers, including the aforementioned names, with a combined $14 trillion in assets under management while noting it had another 25 contracts outstanding.

Many other asset management firms have filed applications with the SEC for exemptive relief to allow them to launch actively managed funds under a non-transparent product structure.

“Our focus remains clear: to provide the best possible venue for listing ETFs, and to help asset managers optimize their product and business growth strategies,” said the NYSE. “Following SEC approval of Exchange listing rules, we look forward to supporting launches across all of the actively managed, non-transparent methodologies.”

For more ETF industry news and updates, visit