Non Transparent ETFs Disappoint Despite Industry Hype

Despite the industry hype, Non Transparent ETFs have been disappointing in recent years.

They've failed to gain traction with investors, with assets under management (AUM) remaining relatively low.

In fact, the AUM of Non Transparent ETFs has actually decreased in some cases, contrary to expectations.

One reason for this is the lack of transparency, which makes it difficult for investors to understand how their money is being used.

Investors were unimpressed with non-transparent ETFs because they lack clear and detailed information about their holdings.

Many investors prefer to have more control over their investments, but non-transparent ETFs make it difficult for them to do so.

These funds often have large holdings of illiquid assets, such as private companies or real estate, which can be hard to value accurately.

Investors may be wary of non-transparent ETFs because they can't easily see what they own or how much it's worth.

The lack of transparency can lead to a lack of trust among investors, who may be hesitant to invest in these funds.

Non-transparent ETFs may also be more expensive than their transparent counterparts, which can be a turn-off for investors who are looking to save money.

Investors who value transparency and control over their investments may be better off choosing a different type of fund.

The non-transparent ETF solutions are here to stay. Five new structures were approved by the SEC in 2019, with at least two more in registration.

These new structures offer varying degrees of portfolio non-transparency, which is a game-changer for actively managed ETFs. Industry sentiment is that actively managed ETFs can now thrive with some protection for the portfolio management process.

Precidian was the first to receive SEC approval, and it's the most opaque of the new structures, posting portfolio information only quarterly. This is similar to how open-end mutual funds operate.

T Rowe Price and Fidelity have proprietary models for their internal use, which is a significant advantage. Nottingham has entered into agreements with the New York Stock Exchange AMS structure and with the Blue Tractor Shielded Alpha structure.

The market makers for the ETF are a critical component, and they must have a market value of the ETF on a current basis to make a bid-ask spread to ETF shareholders. This is essential for purchasing or selling shares.

The impact of non-transparent ETFs on the industry is significant. They have created a new level of complexity for investors, making it difficult to understand what they own.

Many non-transparent ETFs use a sampling strategy, which can result in tracking errors and make it hard to replicate the underlying index. This can be frustrating for investors who want to buy and hold a specific index.

Non-transparent ETFs have also led to the creation of new job roles, such as ETF analysts who help investors understand the nuances of these funds. This is a positive development for the industry as a whole.

However, the proliferation of non-transparent ETFs has also raised concerns about market manipulation and insider trading. This is a serious issue that needs to be addressed.

The use of non-transparent ETFs has also been criticized for creating a lack of transparency and accountability in the financial industry. This can erode trust in the markets and damage the reputation of financial institutions.

Invesco has already applied to launch some of their actively managed mutual funds in the ETF structure.

This move is part of a larger trend where active managers are adopting active ETFs.

Invesco is one of the large firms that is taking advantage of this new opportunity.

Their decision to apply for active ETFs suggests that they see value in this new structure.