Investment vehicles come in all sorts of wrappers to fit a variety of client needs, from mutual funds to actively managed ETFs and everything in between. The rise of ETFs as a more tax efficient option compared to mutual funds has opened the door for all sorts of portfolios and management styles, and the addition of semi-transparent management as an option for ETFs has opened that door even wider.
The introduction of semi-transparency has encouraged more active managers to step into the ETF arena because at its core, it allows for those managers to invest with confidence while still protecting their proprietary strategies as they work to produce alpha for their clients. This particular style of fund prevents front-running or potential leaking of an active manager’s investment strategies said J. Womack, managing director of investment products and services for Independent Advisor Solutions, in an interview with U.S. News.
Semi-transparent active ETFs are also much more tax efficient than their actively managed mutual fund counterparts and can help to address tax concerns in an overall portfolio. Increasingly, more active managers are converting their mutual funds to ETFs for this very reason, adding greater options within ETF investing. Having the option to step into a semi-transparent ETF only encourages this shift by the industry as managers and firms can keep their proprietary strategies concealed.
“We believe that the availability of active investment strategies using the ETF structure will expand as a result of the development of semitransparent ETFs,” said Womack.
Some advisors prefer active management in specific asset classes, and with the growing number of options available because of semi-transparent ETFs, it is easier to customize a portfolio to a client’s needs. The focus, Womack believes, should always be on the strategy that is being pursued, not on the type of vehicle that is used to achieve that strategy.
“An advisor’s motivation for including a semitransparent ETF over a transparent one would be related to an investment decision — for example, is this the right strategy for my client? — not an implementation decision — for example, do I prefer a semitransparent ETF to a transparent one,” Womack explained.
American Century Investments offers a suite of transparent and semi-transparent ETFs; from the ESG-focused American Century Sustainable Equity ETF (ESGA) and American Century Mid Cap Growth Impact ETF (MID), to the growth-focused American Century Focused Dynamic Growth ETF (FDG), there is a variety of options for active semi-transparent funds to match an advisor’s strategy.
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