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May 21, 2019 at 10:03 PM
The rush of nontransparent ETFs may have just begun.
On the same day that Precidian Investments announced it had been granted approval from the Securities and Exchange Commission for its nontransparent ETF structure, known as ActiveShares, American Century Investments announced it had filed with the SEC to trade “semi-transparent ETFs that will utilize the ActiveShares methodology.”
American Century is one of 10 asset management firms that has licensed the ActiveShares methodology from Precidian, and 20 other asset managers are in discussion with Precidian to do the same, according to Daniel McCabe, the firm’s chief executive.
“ActiveShares will enable active managers to offer new and existing strategies in an ETF vehicle, combining the best of active management with the many benefits of an ETF,” McCabe said in a statement. The 10 asset managers that already have signed contacts with Precidian account for 25% of the active U.S. equity mutual fund market, according to the firm.
Unlike most ETFs, which are passive investments that disclose their holdings daily, nontransparent ETFs are actively managed funds that disclose their holdings with a lag, but they have the same tax efficiencies of ETFs. In the case of ETFs that use Precidian’s structure, holdings will be disclosed quarterly with 60-day lag, like most mutual funds.
The SEC approval of the Precidian Investments’ ActiveShares structure and American Century filing was the talk of Tuesday’s ETFs Global Markets Roundtable conference in New York.
SEC Commissioner Hester Peirce, who gave the lunch keynote address, said she hopes the agency “moves expeditiously on the remaining requests for exemptive relief” for similar ETFs.
Jillian DelSignore, head of U.S. ETF distribution at J.P. Morgan Asset Management, said her firm was “excited to bring its capabilities into this unique structure.”
But Andrew Upward, ETF strategist at Jane Street Group, a market maker in ETFs, had a more mixed reaction. The SEC’s approval of Precidian’s structure “will bring new a new swatch of active managers into the ETF realm” but also “probably more expensive liquidity,” said Upward.
