- The zeitgeist for the last several years would suggest that the massive shift to passive investments from active is entirely driven by a flight to lower fees for passive products; we might contend that a strong secondary consideration is the flight to liquidity that’s inherent in the ETF structure. The ability to enter and exit ETF positions almost instantaneously is a huge advantage over traditional active mutual funds – and active managers are finally starting to get the tools they need to enter the ETF space and fight back. We’re neutral observers in this struggle of course, but from a shareholder intelligence perspective, we’re curious about position transparency requirements for each fund. We’d previously covered the Precidian ActiveShares structure in the April 12 Autocorrect – which the SEC had approved and would be entirely non-transparent for holdings, but would require a third party to publish NAV’s every second; needless to say, this may not be the most attractive structure for investors looking for trust in their ETF provider.
This week, the SEC announced it would approve four new structures of actively-managed ETFs that would offer different types of position transparency, as proposed by T. Rowe Price, Fidelity, Natixis, and Blue Tractor (P&I coverage). Each of these take a slightly different approach: Fidelity’s proposal would have the fund disclose a “tracking basket” of securities designed to trade within a close range of the overall portfolio’s combined NAV’s, Natixis’ would disclose a sample portfolio that would be “overinclusive” and contain more securities than the actual portfolio, with the option to reflect actual security buying and selling from 5 to 15 days after the completed trades. T. Rowe’s sample portfolio would contain an 80% overlap with the underlying portfolio’s securities. Regardless, if these portfolio strategies launch and start to attract enough assets, it could cause some interesting issues with position disclosure. No cause for alarm yet, but we’ll keep an eye on these developments as they progress.