Get ready for a possible flood of actively managed U.S. equity ETFs that don’t disclose their actual holdings on a daily basis, as most ETFs do.
The Securities and Exchange Commission on Thursday gave preliminary approval of applications for such ETF strategies, referred to as nontransparent or semi-transparent strategies, from T. Rowe Price, Fidelity, Natixis and Blue Tractor. The first three asset managers would come to market with their own funds. Blue Tractor would license its strategy to asset managers, much like Precidian has done with its nontransparent ActiveShares ETF strategy, now licensed by more than 10 financial firms.
The asset managers still have to file registrations with the SEC for the specific ETFs that would use these strategies and the exchanges where the ETFs also have to file for SEC approval.
Scott Livingston, head of global ETF product at T. Rowe Price, called the latest SEC action a “significant milestone” for the firm, noting that there will be more regulatory filings to follow a final notice from the SEC for its semi-transparent actively managed ETF. T. Rowe has not determined yet which investment strategy will be available in the nonconventional ETF structure.
“This is certainly good news for the overall ETF industry and even better news for asset managers themselves who have made these filings and for smaller asset management that may want to partner with an infrastructure provider that will support nontransparent ETFs,” said Todd Rosenbluth, director of ETF and mutual fund research at CFRA, an independent research firm.
He expects a nontransparent ETF using Precidian’s ActiveShares strategy will come to market in early 2020, followed by more such ETFs later in the year, including those from firms whose strategies just received SEC preliminary approval. “It takes months to be able to get an actual ETF A launched,” Rosenbluth explained. “It takes time to build up distribution and prepare for launch.”
American Century, which has licensed Precidian’s ActiveShares strategy, hopes to launch a growth and a value nontransparent ETF trading on the Cboe in the first quarter of next year following SEC approval of the Cboe’s filing, which is pending, said Edward Rosenberg, head of ETFs.
Natixis hopes to introduce its first active nontransparent ETF in the second half of 2020 pending further regulatory approvals, according to Nick Elward, head of product and ETFs at Natixis Investment Managers. Fidelity and T. Rowe Price did not provide any timelines.
Ryan Sullivan, senior vice president with the ETF servicing team at Brown Brothers Harriman, a global custodian for mutual funds and ETFs, said these new types of ETFs highlight the “great evolution” that is taking place in the ETF marketplace, from predominately passive funds to the inclusion of actively managed vehicles that will be as tax efficient as passive ETFs and likely cost less than a similar actively managed mutual fund.