Why Nontransparent ETFs May Appeal to Advisors

A new survey from Columbia Threadneedle suggests that many advisors are likely to consider  actively managed ETFs that don’t disclose their holdings on a daily basis, especially if they’re already familiar with the managers of those funds.

These nontransparent ETFs — also called semi-transparent or just active ETFs — are relatively new products in the asset management universe, but they are proliferating. They don’t reveal their holdings on a daily basis, as most ETFs do, but they have the tax efficiency of ETFs and, like mutual funds, they disclose their holdings with a lag to avoid front-running by competitors.

The survey of 200 advisors found that close to half plan to increase their allocations to active ETFs and 80% favor ETFs from portfolio managers they’re familiar with. Less than half the advisors surveyed said they were very familiar with the portfolio managers of the ETFs they currently use.

Since many of the newly launched nontransparent active ETFs are versions of comparable mutual funds from the same fund family, they are likely to appeal to advisors who already use those mutual funds or know of them, assuming their clients are willing to invest in ETFs. These ETFs also generally have lower fees than their mutual fund counterparts.

American Century, Fidelity and T. Rowe Price are three mutual fund families that have introduced ETFs that are similar to established active mutual funds.

(Related: Will Nontransparent ETFs be Transformational?)