Actively managed non-transparent ETFs recently got the green light from U.S. regulators, and from the initial reactions, financial advisors seem to be interested in the newly adapted investment vehicle.
According to a recent Broadridge Financial Solutions survey, over four in five or 83% of financial advisors revealed they are hoping their favorite active mutual funds may become available in a non-transparent ETF structure.
The Securities and Exchange Commission recently approved the actively managed non-transparent ETF structure through the Precidian ActiveShares exemptive relief filing in June 2019, allowing fund managers to disclose holdings on a quarterly basis or ultimately keeping holdings more confidential than with traditional transparent ETFs. This is seen as a way for active fund managers to better guard their secret sauce against front runners or would-be investors that would take advantage of an active fund manager’s investment methodology.
However the Broadridge survey also revealed that many financial advisors still exhibit a low level of awareness of the newly approved ActiveShares ETF structure, but they find the concept and definition of active non-transparent ETFs appealing. According to the findings, only 4% of advisors said they were “very familiar” with ActiveShares while 37% of respondents were entirely not aware and another 37% have heard of the name but know nothing about the technology.
Nevertheless, when presented with the idea of the active non-transparent ETF structure, 85% of advisors stated that they were interested in the concept.
“There is a clear awareness and learning curve among financial advisors given how recently the SEC has approved active nontransparent ETF technology,” Matthew Schiffman, principal for Distribution Insight, Broadridge Financial Solutions, said in a note. “What is interesting is the level of comfort advisors already have with the concept of active, opaque ETFs – and how quickly they would plan to allocate assets to these products.”
Looking ahead, 22% of respondents said they would use such non-transparent products within 12 months and an additional 64% showed willingness to do so after 12 months of introduction to the market. Around 46% of advisors foresee allocating new, not-yet-invested assets to nontransparent ETFs. Additionally, 63% of advisors anticipated active nontransparent ETF assets being re-allocated from actively managed open-end mutual funds.
Among the top concerns among advisors, many singled out that active nontransparent ETFs are too new and untested in the market.
“Active nontransparent ETFs are likely to be additive to the asset management landscape, as the advisors we surveyed expect to allocate entirely new assets as well as assets from other ETFs and passive open-end mutual funds,” Schiffman added. “Asset managers shouldn’t let this moment pass, as they now have a prime opportunity to further engage with advisors, primarily through wholesalers and other one-to-one channels.”
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