Once the Securities and Exchange Commission approves the first strategy for nontransparent actively managed ETFs, which could happen as early as this Friday, many more such ETFs could be coming to market.
A Cerulli Associates survey of “product heads” from 35 asset managers found that 46% indicated they would build nontransparent ETF capabilities within a year if the SEC approves the ActiveShares proposal from Precidian Investments. More than half of those asset managers (55%) expect to launch a nontransparent actively managed equity structure; while 30% expect to launch a similar strategy for fixed income investments.
Currently only 2% of ETFs are actively managed and most of those are fixed income products. If the SEC gives final approval to Precidian’s application — it has already given tentative approval — the odds improve for other pending nontransparent actively managed ETF proposals.
Asset managers are either entering into licensing agreements with firms waiting for approval of their structures, such as Precidian, or filing their own applications for nontransparent actively managed strategies.
In the first group are Legg Mason, Capital Group, JPMorgan, Nationwide, Gabelli, Columbia, American Century and Nuveen which have already licensed ActiveShares from Precidian. In the latter group are NYSE/Natixis, Fidelity, T. Rowe Price, Blue Tractor Group and Eaton Vance, which already offers NextShares, an actively managed exchange managed fund, which has characteristics of both mutual funds and ETFs but has failed to attract much investor interest.
Each of these (new) filings for an actively managed nontransparent ETF “sits on a spectrum of transparency,” according to Cerulli. Fidelity’s proposal includes an optimized tracking basket that has similar exposures to securities in the ETF but are not all the same securities and weights of the actual fund holdings. Blue Tractor’s Shielded Alpha proposal reveals all the fund holdings but scrambles the weights.