Active ETFs on the horizon

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.”