Relaxation of disclosure regulations in the US last week could see a proliferation of actively managed exchange-traded funds.

Last week the US Securities and Exchange Commission gave conditional approval for active ETFs in the US to trade without being required to disclose their holdings on a daily basis, a model similar to that which is currently in place for Australia’s active ETF industry.

“The fact that the US-based Precidian Investments was given approval to trade its active ETF without publicly disclosing changes to its holding on a daily basis is a major step forward in the development and growth of the US active ETF market,” Pinnacle Investment Management director of listed products Chris Meyer said.

Precidian is the first US fund manager to win approval for a non-transparent ETF and market regulators are expected to approve trading of more active ETFs without the asset manager having to disclose what it owns on a daily basis, as active ETFs have had to do to date.

The move could potentially spur many more fund managers to offer active ETFs while allowing them to protect the intellectual property of the securities they own by not revealing their portfolio changes to market on a daily basis.

“Active ETFs in the US will still have to disclose daily holdings, but only to a new subset of professional trader called ‘authorised participant representatives’,” Mr Meyer said. “The public will receive the portfolio holdings on a quarterly basis, much the same as Australia.”

The decision is considered a win for active stock pickers who do not want to reveal their holdings for fear that “front runners” and others may seek to capitalise on predicting their next move.

Mr Meyer expects this to facilitate development and growth of active ETFs in the US, as well as Australia and elsewhere around the world.

“As the active ETF market grows in the US, increased education on what active ETFs are and the benefits they have for investors should help stimulate the interest in and adoption of active ETFs in Australia that bodes well for the industry’s growth,” he said.

Active ETFs were kicked off in Australia by Magellan in 2015 and there are currently more than 30 such ETFs, covering about $4 billion of funds under management from issuers including AMP Capital, Antipodes Partners, Fidelity, Legg Mason, Platinum and Magellan.

Locally-based Antipodes — part of the Pinnacle stable of fund managers — recently launched its Antipodes Global Fund as an active ETF. 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, announced it would approve the proposal unless its commissioners decide to order a hearing.

“Many US active fund managers had been unwilling to bring active ETFs to market as they did not want to expose their trades to the public immediately,” Pinnacle’s Mr Meyer said.

Author Chris Meyer

Chris Meyer is Director of Listed Products at Pinnacle Investment Management.

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