The SEC has given T. Rowe Price final approval for the firm to introduce four nontransparent equity ETFs, which the firm expects to introduce sometime in the third quarter.
They will be the first ETFs of any kind for the Baltimore-based asset manager, which has approximately $1.9 trillion in assets.
The four funds are the Blue Chip Growth ETF, Dividend Growth ETF, Equity Income ETF and Growth Stock ETF. They will all use the same investment strategies and portfolio managers that manage their corresponding mutual funds but their expense ratios will be slightly lower, from 50 basis points for the Dividend Growth ETF to 57 basis points for the T. Rowe Price Blue Chip Growth ETF. The ETFs will list on the NYSE Arca.
Asked whether the new ETFs would cannibalize mutual fund counterparts, a T. Rowe Price spokesman said the purpose of the funds was to provide investors the “formats of their choosing, letting them decide what works best for themselves.”
Scott Livingston, head of global ETF product at T. Rowe Price, made a similar point in his statement. “We know that one size doesn’t fit all for investors so the new active ETFs will complement T. Rowe Price’s current offerings and broaden the appeal of our investment capabilities.”
The four new T. Rowe Price ETFs, like other nontransparent ETFs, will not disclose their holdings on a daily basis as traditional ETFs do. Holdings will be disclosed on a quarterly basis with a 15-day lag. The ETFs will use a proprietary proxy portfolio structure consisting of a basket of securities designed to closely track the daily performance of the fund’s actual holdings with a minimum 80% overlap of portfolio weightings at the beginning of each trading day.
Investors will be able to view that overlap daily as well as the fund’s tracking error, which is the standard deviation over the past three months of the daily spread between the proxy portfolio’s NAV and the fund’s NAV at the end of the trading day.
If there are no other introductions of nontransparent ETFs before the T. Rowe Price funds debut, the asset manager will be the fourth to bring nontransparent ETFs to market following American Century, Clearbridge/Legg Mason and Fidelity Investments. T. Rowe Price plans to make its nontransparent active ETF available to other asset managers.
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