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Capital Group Joins BlackRock in Filing for Non-Transparent ETF

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Capital Group Cos., owners of the $1.17 trillion American Funds family, has joined money managers including BlackRock Inc. in seeking regulatory approval for a new type of exchange-traded fund.

Capital Group filed today with the U.S. Securities and Exchange Commission to open a non-transparent, actively managed ETF, a product that would clear the way for traditional stock-picking managers to offer their funds in an ETF package.

“We are filing so we can fully explore the possibility of offering a non-transparent ETF,” Chuck Freadhoff, a spokesman for the Los Angeles-based company, said today in an interview. “We’ve made no final decision and have no timeframe.”

Active ETFs combine the security selection of an actively managed fund with the intraday trading and some of the cost-saving characteristics of traditional ETFs. Companies have been discouraged from introducing such products by the SEC’s requirement for daily disclosure of fund holdings, which would make it easy for competitors to copy, and traders to anticipate, a manager’s portfolio changes.

Actively-managed ETFs account for less than 1 percent of U.S. ETF assets and are dominated by products that invest in bonds. Transparency is less of an issue on the fixed-income side, where the opacity and negotiated nature of transactions in the over-the-counter bond market protect managers.

Capital Group also agreed to obtain the rights to use a formula for a nontransparent fund patented by Bedminster, New Jersey-based Precidian Investments. Precidian has previously filed for SEC approval of the product. Freadhoff said Capital Group had not made a final decision to use the Precidian patent.

Capital Group’s American Funds hold about $791 billion in actively-managed stock mutual funds, according to data compiled by Bloomberg.

T. Rowe Price Group Inc. in Baltimore and Boston’s Eaton Vance Corp. are also among fund firms seeking SEC approval for non-transparent active ETFs. None of the applications has been approved.

Check out ETF-Mutual Fund Hybrid: The Next Big Thing?  on ThinkAdvisor.


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