Transparency, one of the key attractions of exchange-traded funds, is being challenged by several big asset managers including JPMorgan, which announced on Sunday its intent to license a patent for an ETF structure that does not disclose holdings on a daily basis.
The model structure, known as ActiveShares, was developed by Precidian, which is seeking approval for its use from the Securities and Exchange Commission. JPMorgan has signed a letter of intent to negotiate a license for ActiveShares.
“Advisors want and use multiple types of investment vehicles to suit different client portfolios, and we are looking forward to helping meet those needs,” said Bob Deutsch, head of ETFs for J.P. Morgan Asset Management. ”It will be no less transparent than a traditional mutual fund, and there won’t be the risk of front-running or reverse engineering.”
Those are key concerns of financial firms wanting to introduce active equity ETFs. They do not want to disclose throughout the trading day the exact components of their portfolio for fear of losing a competitive edge.
At this week’s Inside ETFs conference in Hollywood, Florida, Nigel Bradshaw, Global ETF leader at PwC, said SEC approval of models for nontransparent ETFs could be a “game changer” for the future of ETFs, “opening up a whole new market for the industry.”
A PwC report released in July said the approval of nontransparent ETFs is the most important development over the next five years.
(Related on ThinkAdvisor: 3 Trends Hitting ETF Industry)