American Century Looks to Launch Non-Transparent ETFs

Precidian Investments has gained regulatory approval for a new type of actively managed semi-transparent exchange traded fund called ActiveShares, and other money managers like American Century Investments are already courting the license holder to launch non-transparent active ETFs of their own.

“SEC has granted exemptive relief, at least for for us and potentially others, on the ActiveShares product, so we have registrations already out there,” Ed Rosenberg, Senior Vice President, Head of ETFs, American Century Investments, said at the 2019 Schwab IMPACT conference.

Precidian’s ActiveShares functions in a similar fashion to existing ETFs by quoting a consistent intraday price to the market (called a “VIIV” or verified intra-day indicative value). While all other ETFs publish an IIV/IOPV every 15 seconds, ActiveShares will take it a step further and publish the VIIV every second.

The new structure will allow American Century to deliver its time-tested actively-managed investment strategies in these ETF vehicles without the daily holdings disclosure requirement of fully transparent ETFs.

ActiveShares will enable fund managers to combine the potential for alpha generation – traditionally associated with active mutual funds – with the simplicity, cost-efficiency and tax benefits of ETFs.

Because it is an ETF, ActiveShares requires no new operational changes and fits seamlessly into existing platforms. This makes it easy for licensees to provide active investment strategies in an ETF structure.

With more traditional money managers eyeing the ETF space but remaining reluctant to give up their secret sauce under the transparency of the ETF investment vehicle, many are looking into non-transparent exchange traded products as a way to combine the best of two worlds.

“The ETF is just a wrapper – just like an SMA or a mutual fund. There are clients who prefer different structures, and as time gone on, clients have preferred more and more in ETF structure. But at American Century, we’ve only had ETFs for a little less than two years, and so clients want our ideas in a structure that they want, which is ETFs,” Rosenberg added.

Many other asset management firms have also filed applications with the SEC for exemptive relief to allow them to launch actively managed funds under a non-transparent product structure. Many see the benefits and efficiencies associated with the ETF structure and hope to also jump on the booming growth in the up-and-coming fund segment.