Market regulators are poised to approve trading of a new kind of product that could bring more stockpickers to U.S. exchange-traded funds, according to a filing on Monday.
The U.S. Securities and Exchange Commission’s conditional approval would allow Precidian Investments to license a new type of actively managed exchange-traded fund (ETF) that, like traditional active mutual funds, will not be required to disclose what it owns on a daily basis as most current active ETFs must.
The Precidian funds will disclose daily holdings only to a new subset of professional trader called the “authorized participant representative” in order to facilitate the process of creation and redemption of ETF shares, the filing said.
The SEC, which had twice before declined to give a green light to Precidian’s non-transparent active ETFs due to concerns about whether the funds’ prices would track their holdings, said it would approve the proposal unless its commissioners decide to order a hearing.
Bedford, New Jersey-based Precidian’s ActiveShares technology - which has been licensed by fund companies including ETF giant BlackRock Inc - is designed for money managers who actively pick stocks and bonds instead of following a market index.
The new products could potentially spur fund managers to offer more active ETFs and improve their performance by not revealing their trading strategies to rivals.
Daniel McCabe, chief executive officer of Precidian Investments, said many active managers have been unwilling to bring ETFs to market because they did not want to expose their trades to the public immediately.
The new structure offers investors access to those fund managers with many of the benefits enjoyed by ETF investors, including their ability to sidestep some capital gains taxes that accrue in mutual funds, McCabe said.
“The same benefits that are you look at in today’s ETFs are available in this structure but it works not only for an index-based product but specifically for active managers,” he said.
“This is very good news for investors.”
Asset management firm Legg Mason Inc holds a minority equity position in Precidian.