Funds Hiding ‘Secret Sauce’ Could Be $3 Billion Market in 2021

A new breed of exchange-traded funds that hide their holdings has been slow to win over fans this year. That may change in 2021.

Assets in the active non-transparent category -- known as ANTs -- could reach $3 billion by the end of next year, Bloomberg Intelligence predicts. The funds have only attracted about $800 million so far, but companies that license the methodology hold a collective $1 trillion in assets, indicating a huge potential for growth.

Since launching in April as the coronavirus upended global markets, many of the ANT funds have outperformed peers, showcasing active managers who offer their strategies in an ETF wrapper without revealing all their secrets. They’ve had to overcome investors’ desire for transparency, varied performance records and, of course, a global pandemic.

“It’s really allowed a lot of other firms in the managed-fund industry to come in and offer their strategies in a different vehicle,” said Matthew Bartolini, head of SPDR Americas Research at State Street Global Advisors. “The outlook for 2021 hinges on the performance of all active strategies whether they’re transparent or non-transparent.”

There are signs that all active funds are starting to make headway in a world dominated by passive products. While active funds make up only 3% of the total $5.3 trillion U.S. ETF market, they are on pace for their best year of inflows on record.

Strong Starts

American Century became the first firm to release active non-transparent funds in April, debuting one tailored to growth strategies and another to value. The firm’s Focused Dynamic Growth ETF (FDG) has added more than $200 million in assets since its launch.

Offerings from Fidelity Investments Inc., Natixis SA and T. Rowe Price Group Inc. also came to market, while Invesco Ltd. received a nod from the Securities and Exchange Commission to move forward with its own model, probably launching in 2021.