Mutual Benefits
The new funds reveal their holdings just once a quarter, as opposed to the daily disclosures done by a regular ETF.
That’s an alluring prospect for mutual fund managers confronting the ongoing march of cheaper, easier to access passive products. They can adopt similar structures while shielding their secret sauce from front-running or replication by rivals.
But lingering questions about how the structure will hold up during times of market stress are keeping asset allocators such as E*Trade Financial’s Mike Loewengart at bay.
The share price of a traditional ETF normally stays in lockstep with the value of their underlying holdings thanks to specialized traders known as authorized participants, who step in to capitalize on any price discrepancies and keep the two moving in tandem. With an ETF that conceals its holdings, that process looks a bit different.
Most ANTs launched so far use the so-called ActiveShares model from Precidian Investments. The structure publishes an indicative value every second to help traders make a price and enlists an agency broker -- known as an authorized participant representative -- to confidentially buy and sell securities for the APs.
Alternative methodologies from Fidelity, T. Rowe Price Group Inc., Natixis SA and Blue Tractor Group LLC have also been approved.
“It hasn’t really been tested yet,” said Loewengart, the managing director of investment strategy at E*Trade. “They need to become more seasoned.”
This article was provided by Bloomberg News.