A New ETF in Town
It has been a long-time coming, but investors will now be able to purchase actively managed equity ETFs. The Securities and Exchange Commission (SEC) approved a new kind of ETF - the semi-transparent ETF. Until recently, most of the actively managed ETFs are on the fixed-income side.
Unlike the traditional ETFs, whose managers must report their holdings daily, the new semi-transparent ETFs required monthly or quarterly disclosures. Many active money managers tend to shy away from traditional ETFs because of the daily disclosure requirements.
The new disclosure method would enable investors to see the daily moves a money manager makes to the portfolio. It opens the door for investors to "steal" their investment strategies. Also, with semi-transparent ETFs, investment managers can improve their alphas since they can deviate from an asset allocation model based on the weighting of a benchmark index required of passive ETFs. With less frequent disclosures of stock holdings, a money manager can offer proprietary investment strategies at a fraction of the cost of active mutual funds.
In summary, some of the advantages of the semi-transparent active ETFs:
(1) Mitigates front-running risks. The full reporting of holdings on a monthly or quarterly basis instead of daily allows for alpha-generating proprietary strategies and lowers front-running risks. (2) Offers portfolio management benefits from similar tax advantages of trading ETFs with the creation/redemption process. (3) Trading flexibility and liquidity like traditional ETFs since the portfolio trades intraday with continuous pricing and executions. (4) Provide cost efficiency by typically lower net expense ratios than mutual funds as it relates to lower operating expenses.
It is too soon to determine if this new breed of ETFs will gain traction with ETF investors. However, the number of choices is beginning to grow. The issuers of active ETFs include many of the large mutual-fund companies such as Fidelity Investments, American Century Investments, Franklin Templeton, and T. Rowe Price. Besides, the above large mutual funds, Gabelli Funds, Goldman Sachs, and others have announced plans to license some of the semi-transparent ETFs.
As of 12/22/20, there are now more than 13 active equity or semi-transparent ETFs available for investors. The following is the list of the semi-transparent ETFs traded in the U.S. ranked by total assets:
Symbol ETF Name Total Assets ($MM)
FDG American Century Focused Dynamic Growth ETF $207.58 MM
FBCG Fidelity Blue Chip Growth ETF $178.54
FLV American Century Focused Large Cap Value ETF $168.82
TCHP T. Rowe Price Blue Chip Growth ETF $59.92
FBCV Fidelity Blue Chip Value ETF $40.66
TDVG T. Rowe Price Dividend Growth ETF $33.08
TGRW T. Rowe Price Growth Stock ETF $25.81
TEQI T. Rowe Price Equity Income ETF $23.05
FMIL Fidelity New Millennium ETF $20.11
EQOP Natixis U.S. Equity Opportunities ETF $11.77
VNMC Natixis Vaughan Nelson Mid Cap ETF $7.69
VNSE Natixis Vaughan Nelson Select ETF $5.99
CFCV ClearBridge Focus Value ETF $3.13