For non-transparent exchange-traded funds to really take off, financial advisors will have to get more information on them. According to a Broadridge Financial survey in 2019, nearly three-quarters of advisors said they knew nothing about non-transparent ETFs.
Apparently, how the funds’ portfolios are valued is complicated, but that doesn’t mean advisors aren’t interested. According to Broadridge, 83 percent of advisors want their favorite mutual funds to launch an active ETF product.
Over the last decade, the popularity of ETFs has taken off. The non-transparent variety are the newest iteration of the fund style and are looking to tap into a market that surpassed $4 trillion in assets last year. Why the sudden boom? The funds are low-cost and have tax advantages, which is putting pressure on active managers.
The goal may be to cut deeper into the mutual funds market, where there are over $20 trillion in assets invested as of the end of April, according to the Investment Company Institute. Actively managed mutual funds still make up the largest portion of advisor portfolios, according to Broadridge. But with the SEC’s approval of non-transparent ETFs, portfolio managers may want to enter a market they’d previously stayed away from.
Their initial reluctance could very well stem from careers spent choosing which socks to buy and sell and not simply wanting to give up all that research and time spent for free. Non-transparent ETFs remove that burden.
The structure of non-transparent ETFs allows managers to reveal all, or just some, of their holding on a quarterly basis, rather than daily.
While some companies such as Fidelity have already launched non-transparent ETFs this year, others are waiting for more information on things like intraday pricing will work.
The reality is, ETFs are more tax-efficient and therefore, advisors with wealthy clients are expressing more interest in non-transparent ETFs. Where they’ll go from here, only time will tell.