The decision last month by the Securities and Exchanges Commission to approve actively-managed non-transparent ETFs via Precidian ActiveShares has got financial advisors excited.
A survey of FAs in the US by tech firm Broadridge Financial Solutions reveals that advisors are ready to allocate assets to the new structures and 83% are hoping their favourite active mutual funds will become available in this form.
The funds – also known as active ETFs, opaque ETFs, and semi-transparent ETFs - allow fund managers to disclose holdings on a quarterly basis, ultimately keeping holdings more confidential than with traditional transparent ETFs.
But while those who know about the new type of fund are keen to get on board, there is still relatively low awareness among the wider FA community.
The ActiveShares® ETF Platform uses patented processes and technologies that enable fund managers to deliver the benefits of alpha generation associated with active management, and the cost savings, tax efficiency, and flexibility of ETFs.
But only 4% of FAs surveyed said they were “very familiar” with ActiveShares, 37% are entirely not aware and another 37% have heard of the name but know nothing about the technology.
“There is a clear awareness and learning curve among financial advisors given how recently the SEC has approved active nontransparent ETF technology,” said Matthew Schiffman, principal for Distribution Insight, Broadridge Financial Solutions. “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.”
When presented with the concept, 85% of FAs expressed interest with 22% saying they would allocate assets to non-transparent ETFs within 12 months and 64% stating they would do so after 12 months of introduction to the market.
Why FAs are interested
The main reasons respondents gave for their interest in non-transparent ETFs were product performance record (69%), good liquidity/daily trading volume (68%) and asset manager brand strength (55%).
But the main concern is that the products are untested in the market, although most expect their use to escalate quickly.
Almost half of respondents (46%) foresee allocating new, not-yet-invested assets to non-transparent ETFs, while 63% foresee active non-transparent ETF assets being re-allocated from actively managed open-end mutual funds.
“Active non-transparent 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,” added Schiffman. “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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