- A nontransparent ETF is an exchange-traded fund that — unlike traditional ETFs — would not disclose what its actual holdings are on a daily basis.
- Traditional mutual-fund managers have been hesitant to put their strategies into ETFs because they were afraid others would learn how they get their edge versus the broader market.
- However, actively managed equity mutual funds have been losing assets for 14 straight years as investors allocate more money towards ETFs.
- These new ETFs could finally bring the active manager up to par with traditional ETFs, but it could take some time before people embrace the idea.
Active portfolio managers could get some help in the battle against passive investing if a new kind of financial instrument gains traction with investors: the “nontransparent ETF.”
A nontransparent ETF is an exchange-traded fund that — unlike traditional ETFs — would not disclose what its actual holdings are on a daily basis. Instead, some nontransparent ETFs will publish a portfolio with other stocks that is representative of the underlying strategy. Other nontransparent ETFs will make their holdings available without giving the away the exact weighting of each holding.
Previously, traditional mutual-fund managers have been hesitant to put their strategies into ETFs because they were afraid others would learn how they are trying to get their edge versus the broader market. However, actively managed equity mutual funds have been losing assets for 14 straight years as investors allocate more money towards ETFs. These new, nontransparent ETFs could finally bring the active manager up to par with traditional ETFs, but it could take some time before people embrace the idea.
“Active managers have been bleeding AUM, have been seeing their profits shrink, have been laying off managers,” said Simon Goulet, co-founder of Blue Tractor, a company that offers structures for actively managed, nontransparent ETFs. “Combine the structural benefits of an ETF with the fact that many active managers can’t beat the market — and we’re in a bull market — it’s a disaster.”