Non-Transparent, Active ETFs May Be a Big Hit with Financial Advisors

 

The Securities and Exchange Commission lately accepted the actively managed non-transparent ETF structure through the Precidian ActiveShares exemptive relief filing in June 2019, authorizing fund managers to disclose holdings on a quarterly basis or eventually keeping holdings more confidential than with traditional transparent ETFs. This is observed as a way for active fund managers to better guard their secret sauce against front runners or would-be investors that would make use of an active fund manager’s investment methodology.

 

But the Broadridge survey also reported that many financial advisors still exhibit a low level of awareness of the recently accepted ActiveShares ETF structure, but they find the concept and definition of active non-transparent ETFs appealing. Relating to the findings, only 4% of advisors said they were “very familiar” with ActiveShares while 37% of respondents were fully not aware and another 37% have heard of the name but know nothing about the technology.

 

Nevertheless, when introduced with the idea of the active non-transparent ETF structure, 85% of advisors stated that they were interested in the concept. “There is a clear awareness and learning curve among financial advisors given how recently the SEC has approved active nontransparent ETF technology,” Matthew Schiffman, principal for Distribution Insight, Broadridge Financial Solutions, said in a note. “What is interesting is the level of comfort advisors already have with the concept of active, opaque ETFs – and how quickly they would plan to allocate assets to these products.”

 

Looking ahead, 22% of participants reported they would use such non-transparent products within 12 months and an additional 64% showed motivation to do so immediately after 12 months of introduction to the market. Around 46% of advisors foresee allocating new, not-yet-invested assets to nontransparent ETFs. In addition, 63% of advisors estimated active non-transparent ETF assets being re-allocated from actively managed open-end mutual funds.

 

Among the top concerns among advisors, most people singled out that active non-transparent ETFs are too new and untested in the market. “Active nontransparent ETFs are likely to be additive to the asset management landscape, as the advisors we surveyed expect to allocate entirely new assets as well as assets from other ETFs and passive open-end mutual funds,” Schiffman added. “Asset managers shouldn’t let this moment pass, as they now have a prime opportunity to further engage with advisors, primarily through wholesalers and other one-to-one channels.”

 

Source: TRONSERVE