Another nontransparent ETF has launched, just eight weeks after the first two.
The ClearBridge Focus Value ETF (CFCV) uses the ActiveShares structure, like the two nontransparent ETFs launched in early April by American Century, allowing portfolio managers of actively managed funds to disclose fund holdings with a lag, unlike ordinary ETFs. Only a representative of the ETF’s authorized participants will have knowledge of the fund’s daily holdings.
Legg Mason and its affiliate ClearBridge Investments announced the launch. The new ETF is a large-cap equity ETF that seeks long-term capital appreciation and employs a bottom-up fundamental approach to stock selection, according to a filing with the Securities and Exchange Commission. Its holdings will be disclosed quarterly with a 15-day lag.
The ETF trades on the Cboe, like the two American Century nontransparent ETFs that launched in April — the American Century Focused Dynamic Growth ETF (FDG) and American Century Focused Large Cap Value ETF (FLV) — and charges a fee of 49 basis points, according to the SEC filing. After a year the ETF could levy an additional 25 basis-point 12b-1 fee.
In his statement about the new Legg Mason/Clearbridge ETF, Clearbridge CEO Terrence Murphy said the ETF — which he, like others, refers to as “semi-transparent” — provides “greater choice and more opportunities to invest in otherwise inaccessible active strategies in a highly efficient and confidential ETF wrapper.”
Precidian Funds, which is partially owned by Legg Mason, is the investment manager for the ETF, and ClearBridge Investments is its subadvsior responsible for managing the ETF on a daily basis.
In January, Legg Mason announced its intention to increase its minority stake in Precidian to a majority interest of as much as 75%. The next month, Franklin Resources announced a plan to acquire Legg Mason, which is now in process.
To date, 14 financial firms, including Goldman Sachs, have licensed the ActiveShares structure. Some of those firms as well as others have also licensed other nontransparent ETF structures. Goldman has a license with ActiveShares and with Fidelity for its nontransparent structure. More launches are expected later this year. To date, the approach seems to be working as planned.
“The structure has already shown that it can work, and the discussion should really be on the strategies themselves,” said Dave Nadig, chief investment officer and director of research at ETF Flows. Referring to American Century Investments, Nadig said, “ACI has done very well with its dynamic growth fund based on the same structure (up 34% since it launched early April).”
The question for Nadig is whether investors do what is often expected: chasing active outperformance. “So far we’re seeing some evidence: The fund’s had creations pretty much every week or so,” Nadig said. “Nothing dramatic, but a million here and 2 million there do add up over time.”
He added that premiums and discounts to net asset value have been negligible.
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