Semi-Transparent ETFs Are Alive and Well

Active ETFs have gained in popularity in recent years. However, some pundits have prematurely taken out their shovels for some funds. Even as these products show signs of vitality.

Last month, the Financial Times published a piece “Secretive active ETFs lose out to their fully transparent rivals” talking about the differences between active ETF structures.

Active ETFs Are not All Built the Same

As a refresher, in the last three calendar years asset managers launched many actively managed ETFs. Some active ETFs disclose their holdings daily, much like most index ETFs (more on that in a minute). Others provide delayed disclosure of the full portfolio, much like a mutual fund, and have become known as semi-transparent active ETFs. Both structures aim to deliver outperformance of an index like the S&P 500 rather than replicating it.

In the Financial Times piece, it was declared by one pundit that “Semi-transparent ETFs are dead… The semi-transparent vehicle had a short life, but we think the end is nigh.”

VettaFi was quoted in the same article and “argued that for investment houses that offer the same strategy in both ETF and mutual fund formats ‘the semi-transparent approach makes sense’ as ‘all shareholders own the same securities and management can avoid sharing proprietary information.”

At the end of the third quarter of 2023, there was approximately $435 billion in actively managed ETFs across more than 1,100 products. Year-to-date cash flow through September totaled $78 billion with growth accelerating in the third quarter from earlier in the year according to the New York Stock Exchange (NYSE). While more asset managers like Capital Group, Dimensional Funds, Goldman Sachs, and Morgan Stanley are turning to fully transparent products, semi-transparent active funds have a niche.