A new type of exchange traded fund is taking the fund industry by storm and, in the eyes of some industry observers, could rejuvenate the case for active management by keeping fund managers’ equity selection secrets, well, secret.
Some of the biggest financial players are already dabbling with this new ETF idea. For example, BlackRock Inc. has filed to use the structure after the funds debuted in April. JPMorgan Chase & Co. is also working on its own active non-transparent ETFs and projects the non-transparent ETF industry could ultimately command over $7 trillion in assets as more traditional fund managers transition over to the efficient ETF structure.
Importantly, data suggest there’s an audience for ETFs where daily disclosure of positions isn’t required.
“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,” according to ThinkAdvisor.
Issuers believe the new active ETFs offers the best of both traditional active equity and ETF worlds, highlighting value add through the alpha potential of active management, access to a growing array of active equity strategies, the advantages of the more efficient ETF structure, and the additional choice of structures that meet investor needs.
“The survey of 200 advisors found that close to half plan to increase their allocations to active ETFs and 80% favor ETFs from portfolio managers they’re familiar with. Less than half the advisors surveyed said they were very familiar with the portfolio managers of the ETFs they currently use,” reports ThinkAdvisor.
The new breed of active ETFs use AV-based trading, a process similar to how existing transactions in mutual fund shares take place, ANTs investors would be able to send in orders intra-day based on a proxy price that represents the NAV, which is calculated at 4 pm of each day. However, this will concentrate most of the day’s liquidity around the final end-of-day price.
Many of the new “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,” notes ThinkAdvisor.