Dan McCabe, chief executive officer of Precidian Investments, is gathering support for an exchange-traded fund (ETF) that hides its holdings. He has already gotten BlackRock Inc. to help license the idea.
Active managers largely steer clear of the r$4 trillion U.S. market for ETFs. They fear that the daily disclosure they require would unveil their techniques.
McCabe’s patented structure, however, allows ETFs to report like mutual funds (once per quarter), and, therefore, top traders are becoming more and more interested in the ETF world.
McCabe’s ActiveShares funds are scheduled to start trading within the next few months, and, according to analysts at JPMorgan Chase & Co., roughly $7.2 trillion in mutual fund strategies may ultimately work within this wrapper. The funds are targeted at investors who desire a lower entrance cost into the market.
ETFs don't need the same administrative support as mutual funds, and therefore are cheaper. They don't maintain a record of their owners, they usually don't pay incentives to distributors, and they shield investors from capital gains taxes by using securities to pay off redeeming fund holders. This could allow active funds to charge a lower fee, which would help their investing strategies to shine through.
McCabe has spent over a decade educating regulators, asset managers, and brokers about how to trade a fund that doesn't disclose its holdings every day. With his structure, market makers will use an indicative value of the holdings published by the fund every second to judge whether its price is too high or low, rather than scrutinizing its portfolio like ETFs are currently.
With the low costs of ETFs, stockpickers can be competitive on expenses, while also letting their expertise shine.
