Integral to the success of any new financial product is just how captive an audience that product is serving. Active non-transparent ETFs (ANTs) are capitalizing in attention from advisors, but that growth is in the early innings and could be spurred along by more education.
With ANTs, active managers will be allowed to move from a mutual fund to an ETF wrapper, while allowing them to keep their strategies hidden from shareholders. These non-transparent ETFs would move the disclosure of portfolio holdings from a daily event to a quarterly one.
“A new survey from Columbia Threadneedle suggests that many advisors are likely to consider actively managed ETFs that don’t disclose their holdings on a daily basis, especially if they’re already familiar with the managers of those funds,” reports Bernice Napach for ThinkAdvisor. “These non-transparent ETFs — also called semi-transparent or just active ETFs — are relatively new products in the asset management universe, but they are proliferating. They don’t reveal their holdings on a daily basis, as most ETFs do, but they have the tax efficiency of ETFs and, like mutual funds, they disclose their holdings with a lag to avoid front-running by competitors.”
Juice for Active Management
The rise of these non-transparent ETFs, though, should breathe some new air into a stagnant actively managed ETF segment. According to Morningstar data, passive ETFs have accumulated $4.4 trillion in assets under management as of January, but active ETF assets only held $150 billion in assets, compared to assets in active open-ended funds excluding ETFs that amounted to $24 trillion.
One way of looking at ANTs is that this category is new fund “technology.” ANTs represent the best of both worlds ideas: the advantages of active management with the liquidity and tradability of ETFs, something that long eluded the actively managed mutual fund industry.
“Since many of the newly launched nontransparent active ETFs are versions of comparable mutual funds from the same fund family, they are likely to appeal to advisors who already use those mutual funds or know of them, assuming their clients are willing to invest in ETFs. These ETFs also generally have lower fees than their mutual fund counterparts,” according to ThinkAdvisor.
Indeed, the ANT space is attracting some well-known players.
Constructed similarly to flagship investment strategies that have served T. Rowe Price clients well for decades, the active ETFs 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.