A new survey from Columbia Threadneedle suggests that many advisors are likely to consider actively managed ETFs that don’tdisclose their holdings on a daily basis,especially if they’re already familiarwith the managers of those funds.
These nontransparent ETFs — alsocalled semi-transparent or just activeETFs — are relatively new products inthe asset management universe, but theyare proliferating. They don’t reveal theirholdings on a daily basis, as most ETFsdo, but they have the tax efficiency ofETFs and, like mutual funds, they disclose their holdings with a lag to avoidfront-running by competitors.
The survey of 200 advisors foundthat close to half plan to increase theirallocations to active ETFs and 80% favorETFs from portfolio managers they’refamiliar with. Less than half the advisorssurveyed said they were very familiarwith the portfolio managers of the ETFsthey currently use.
Because many of the newly launchednontransparent active ETFs are versionsof comparable mutual funds from thesame fund family, they likely will appealto advisors who already use those mutualfunds or know of them, assuming theirclients are willing to invest in ETFs.These ETFs also generally have lowerfees than their mutual fund counterparts.
American Century, Fidelity and T.Rowe Price are three mutual fund families that have introduced ETFs that aresimilar to established active mutual funds.
Another reason advisors may be interested in nontransparent ETFs: They’refrustrated by the inability to removeunderperforming stocks from index ETFs.
According to the Columbia Threadneedle
study, close to half the advisors surveyed
were somewhat, very or extremely frus-
trated with this limitation; another 19%
were slightly frustrated.
The survey also found that over 80%of respondents viewed liquidity and performance as very or extremely important attributes in their evaluations ofETFs, followed by price (59%) and portfolio managers (43%). Eighty percentof advisors reported some level of confidence with implementing a strategicbeta strategy in a portfolio.
As for their clients, almost two-thirdsof the advisors surveyed said that clientsviewed the growth of principal as themost importance objective for their portfolios; 17% said income and preservationof principal were important client goals.
Surprisingly, older advisors, age 45to 54, were more likely (72%) to rankgrowth of principal as the number oneclient portfolio goal than younger advisors (55%), and younger advisors weremore likely (26%) to rank income thenumber one client objective comparedto older advisors (11%).
BIGGEST OIL ETF AND ITS CEO FACE
POTENTIAL SEC ACTION
The world’s biggest exchange-traded
fund tracking oil is facing U.S. regulatory
action after it took a series of extreme
steps to survive the historic crude selloff
earlier this year.
The Securities and Exchange
Commission has issued the United
States Oil Fund ETF, known as USO, a
Wells Notice about the intended mea-
sures, according to an Aug. 19 filing.
The fund was being probed overwhether it had adequately disclosedrisks to investors after it was forced todramatically reshuffle the mix of futurescontracts it tracked during the marketturmoil. That helped protect the ETF,but meant deviating from its past investment strategy.
The notice states that the SEC hasmade a preliminary decision to recommend an enforcement action against theETF, its CEO John Love and UnitedStates Commodity Funds, the company which manages USO. The decisionrelates to disclosures made in late Apriland early May.
USCF, USO and Love said they intendto vigorously contest any allegations.Judy Burns, an SEC spokesperson,declined to comment.
It’s the latest dramatic twist in thestory of USO, which was at the centerof the storm as crude prices plungedinto negative territory earlier this year.As volatility swept the market, it issuedsix disclosures in less than two monthsannouncing changes to the fund’sinvestment strategy, and temporarilyhalted new share creations — potentiallyuntethering itself from the contracts itwas tracking.
Bernice Napach can be reached email@example.com. Jeff Berman can bereached at firstname.lastname@example.org.
By Bernice Napach and Jeff Berman
Why Nontransparent ETFs May Appeal to Advisors
A new survey from Columbia Threadneedle reveals the qualities that
advisors seek in active ETFs.