Reasons To Love Transparent ETFs
At best, I can compare five of them. WIREX and GABTX are stuck in September, and RYMIX, with daily transparency, doesn't yet provide a Dec. 31, 2013 look-back.
The telecom industry is changing every day. With an annual turnover of 118 percent, FSTCX could well have turned over 19 percent of its portfolio since the end of 2013. How can a fiduciary keep up?
A few weeks ago, when news that Puerto Rico's debt was downgraded to junk status first hit the tape, any ETF investor who feared a hit—or saw an opportunity—had ample tools to assess each ETF portfolio.
Mutual fund muni investors meanwhile have to wait until the end of April to find out if their managers saw it coming. They might never know if, for example, muni managers sell their Puerto Rico bonds before March 30.
There is a morality play in rehearsals at the SEC, in which sponsors of actively managed mutual funds are pushing for approval of nontransparent ETFs.
With huge advertising budgets, issuers will no doubt convince many to choose nontransparent ETFs.
Nontransparent ETFs might suit fund issuers, but they're bad for investors, because they take away a key tool for understanding a fund. They also could be very costly to trade, but that's another matter.
Front-running and copycat portfolios are the typical reasons given for delayed disclosure. Proponents of nontransparency claim that disclosure has a cost. I plan to take up the merits of that position in an upcoming blog.
ETF.com offers a look into equity fund holdings on a monthly basis, updated as soon as our contracts allow—generally five business days. I have pondered adapting the Analytics service to accommodate late disclosure if the SEC should approve nontransparent active ETFs.
But none of my options allows me to compare all funds at the same time, unless I'm willing to delay all equity reports by 60 days, and update them only four times per year. How can Analytics serve fiduciaries if we cannot provide timely portfolio information?
At the time this article was written, the author held no positions in the security mentioned. Contact Elisabeth Kashner at email@example.com.
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