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Details Matter With Active Non-Transparent ETFs

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With active non-transparent ETFs taking the fund industry by storm, it’s important that advisors note some important details with this unique fund structure.

Advisors are looking critically at traditional market indexes and the challenges of navigating today’s new market environment.

“The asset management industry is promoting nontransparent ETFs as the best of both worlds because they will offer access to tested active portfolio management at lower fees and without the tax inefficiencies that plague mutual funds,” reports Jeff Benjamin for InvestmentNews.

Through these semi-transparent or non-transparent ETF structures, money managers like American Century, Fidelity and T. Rowe Price 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.

ANTs Are Here to Stay

“The general concept is to put an ETF wrapper around an actively managed strategy without disclosing the underlying holdings on a daily basis, as all other ETFs do. But each non-transparent ETF structure that has passed SEC scrutiny so far is unique in the way it provides enough portfolio transparency and guidance to keep market-makers engaged for the sake of liquidity,” according to InvestmentNews.

“In most cases, the underlying holdings will be disclosed quarterly, which is the way active mutual funds report their holdings. In that sense, these products are part active mutual fund and part ETF.”

ANTs offer liquidity via the verified intraday indicative value (VIIV). 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.

Broadly speaking, ANTs issued by mutual fund companies 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.

The proprietary non-transparent actively managed ETF wrapper may also attract more money managers into the ETF space, providing active managers a way to capture the benefits of the ETF investment structure while protecting their secret sauce from potential frontrunners.

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.

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