Actively managed, non-transparent ETFs, or ANTs, are fresh on the fund industry scene, but the universe is already growing, indicating there’s a captive audience for blending the benefits of active management and ETF tradability and liquidity.
The new active non-transparent ETF products come with many of the same benefits we have enjoyed with traditional ETFs, but the new structure reduces the need for daily disclosures, which may help bring more stock-picking managers into the ETF space.
ANTs’ “most distinctive feature is that they do not disclose the contents of their portfolios to the public on a daily basis,” writes Morningstar analyst Ben Johnson in a recent note. “This helps prevent their managers from tipping their hand to the market. These ANTs offer investors meaningful benefits over traditional actively managed mutual funds. They also differ from conventional ETFs in nuanced but important ways.”
Angles on ANTs
Unlike standard ETFs, which are required to disclose their holdings daily, nontransparent ETFs will only be required to disclose their holdings once a quarter, giving active managers, who opt to keep their investing methods under wraps to avoid getting front-run, another vehicle through which they may execute their strategies.
While portfolio performance still falls squarely on the shoulders of fund managers, the reduced costs associated with ETFs could be helpful to managers, explained Douglas Yones, head of exchange-traded products at the New York Stock Exchange. NYSE is working with the approved nontransparent-ETF issuers to bring products to the market.
“ANTs’ most durable advantage over retail share classes of mutual funds is their lower fees,” writes Johnson. “No different from the overwhelming majority of traditional ETFs, ANTs’ fees do not have embedded marketing or distribution costs, and their shareholder recordkeeping costs are much lower. These benefits are shared with investors in the form of a lower price tag.”
Of the ANTs on the market today, each one carries lower fees than the retail share class of the equivalent mutual fund. ANTs could be a compelling middle ground between ETFs and old school active funds.
“For investors allocating new money in taxable accounts that want to invest with a particular manager, they may become their vehicle of choice. They are easier to access, cheaper, and have the potential to be more tax-efficient than retail share classes of mutual funds,” according to Johnson.
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