Following the recent launch of the first semi-transparent ETFs in the US, Nichole Kramer, Manager, Distribution ETF Operations, SS&C ALPS, has commented on the different models of semi and non-transparent ETF offerings available at the moment. She writes that SS&C ALPS has a long history of working with ETF providers of all types: “With our deep knowledge in the space, we can assist firms in evaluating which might be the right fit.”
Can you differentiate the relative merits and approaches of all the semi and non-transparent ETF offerings at the moment?
Each of these models have something different to offer. Precidian ActiveShares is the only one that is truly 100 per cent non-transparent and some asset managers may find that to be extremely important. Each of the other approved models offer varying levels of opaqueness. For instance, Blue Tractor’s Shielded Alpha uses a patented algorithm that keeps 100 per cent of the holding names but varies the weighting of each holding nightly, and for a particular strategy, that might be a better fit. NYSE Actively Managed Solutions and Fidelity’s Actively Managed ETFs utilise different types of proxy baskets. Proxy baskets may include a different composition and weighting than the fund’s actual holdings.
The thing I would stress the most, besides firms doing their own due diligence on each model, is that no one model may be the right fit for all asset managers and their associated investment strategies. Each are unique in their own design and structure.
What sort of investor will want to use these products?
I believe that it will depend on their investment strategy and what their financial advisor is targeting for them. The thing to remember is that these are investment vehicles that allow portfolio managers that typically operate in mutual funds to take advantage of what ETFS offer in the way of a tax efficient and cost-effective structure.
What effect will the new launches have on the ETF market?
I think it will be several years before we really know the true impact of these new wrappers. American Century recently launched their ActiveShares. We are waiting for funds to launch under the other models that can be licensed by Blue Tractor’s Shielded Alpha, NYSE Actively Managed Solutions and Fidelity’s Actively Managed ETFs to launch. Once the industry has an opportunity to see them in action and operating, asset managers will have additional metrics available to determine which model(s) may be the best fit for them.
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