Active ETFs on the horizon

Grail Advisors and its partner American Beacon have filed for two multi-manager actively managed ETFs. Scott Burns, editor of Morningstar's ETFInvestor, celebrated the move, saying the ETF structure can help bring more transparency to the fund industry.

American Beacon, a fund of funds manager, will select subadvisors and allocate a percentage of assets under management to each; the holdings will be aggregated and reported daily, but won't be attributed to the managers who hold them.

Grail is still working out the details, but Burns gives a positive outlook on the scheme, pointing out one caveat: "We have a small concern about how the arbitrage mechanism that makes ETFs so tax-efficient will work with active managers in the mix. Our concern is how closely these funds will trade to the underlying portfolios during the day and whether or not wide premiums or discounts to the net asset values could develop. If that happens, the authorized participant investors could find themselves in the position to capitalize on their arbitrage at the other holders' expense."

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