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Transparency is the key … or is it?
In the world of exchange-traded funds, this idea is now officially tested, with the Securities and Exchange Commission having approved the first-ever non-transparent and actively managed ETF structure last week.
Unlike most traditionally structured ETFs, which daily reveal their holdings, this structure – created by Precidian Investments in partnership with Activeshares – allows fund managers to maintain the confidentiality of their holdings. Compared to actively managed mutual funds, which are structured in the same way, this is more tax efficient, according to the Precidian website.
Stuart Thomas, director of Precidian Investments who played a direct role in creating this framework, says this represents a world of new opportunities for investors.
"Precidian ActiveShares is the first and only SEC-approved ETF that seamlessly integrates the benefits of active management with the full effectiveness of today's ETFs," Thomas said on Monday about the "ETF." Edge "of CNBC. "We think it's extremely important from a market point of view, [and] also from the point of view of fiscal efficiency. "
For Thomas, simplicity is the key, which is why this structure "works exactly like SPDR," he said, referring to the popular State Street ETFs. Along with a standard ETF, the Precidian framework offers in-kind creations and redemptions, which make it possible to make purchases and payments with items other than money. cash.
"We think the simple is the best solution, and I think the elegance of this solution is simplicity itself," Thomas said. "From the point of view of the broker or the end user, it looks like any other ETF on the market."
And, according to Thomas, the demand has been exceeded.
"I think we really underestimated the scale of this project, our phones are resonating," he said, adding that the interlocutors went from active managers to deposit banks through market makers. and the candidates for the position of representative of the authorized participants. one of the two roles in this structure who are aware of the holdings of the ETF.
"We do not have time for outgoing calls," Thomas said.
Investment companies are also launching into action. The American Century and Gabelli funds have already filed their own versions of this ETF, and BlackRock, Nuveen and Nationwide are part of the growing list of Precidian licensees, said Thomas.
Christian Magoon, founder and CEO of Amplify ETF, said the initiative would serve to "develop the ETF tent" and to double the benefits of active management.
"The problem is that advisors who use ETFs today tend to be focused on indices or liabilities, not badets. That's why I see this as an extension of the ETF tent, both for issuers and users. look, "he said in the same interview" ETF Edge ".
But for market watchers such as the publisher and owner of ETFTrends.com, Tom Lydon, who acknowledged the benefits of not revealing daily ETF holdings, a question remains.
"Those of us working in the sector are questioning the plumbing, because will it work again?" he said on "ETF Edge".
As of Monday, about a month after the SEC's approval, Precidian had granted a license to use this framework to 20 companies, said Thomas. Against recurring costs, the company transfers its technology to other organizations and offers to act as a sponsor for its products.
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