ETF Education: How Transparent Are ETFs?

January 22, 2018

[This article appears in our January 2018 issue of ETFR Report.]

One of the key benefits of ETFs is that they offer better transparency into their holdings than competing mutual funds. The ability to verify your positions on a daily basis (in most cases) is a big plus.

By law and by custom, mutual funds are only required to disclose their portfolios on a quarterly basis—and then only with a 30-day lag. In between reporting periods, investors have no idea if the mutual fund is invested according to its prospectus, or if the manager has taken on unwanted risks. Mutual funds can and do stray from their described targets—a phenomenon known as “style drift”—which can negatively impact an investor’s asset allocation plan.

ETFs are far more transparent. By custom, most ETFs disclose their full portfolios on public, free websites every single day of the year. If you go to www.ishares.com, for instance, you can find the complete holdings of almost every ETF in the world. You can see regularly updated ETF portfolios here at ETF.com, too.

There is no law requiring that ETFs disclose their full portfolios every day. But even for those that disclose less frequently, there is a catch.

ETF issuers each day publish the lists of what securities an authorized participant must deliver to the ETF to create new shares (“creation baskets”), as well as what shares they’ll get if they redeem shares from the ETF (“redemption baskets”). This—combined with the ability to see the full holdings of the index an ETF is aiming to track—provides an extremely high level of disclosure even for those few ETFs that fall short of the daily-disclosure ideal.

Of note: All “actively managed” ETFs must, by law, disclose their full portfolios every day. They are actually the most transparent of all ETFs.

Key Takeaways

  • Mutual funds publicly disclose holdings quarterly; ETFs typically do so every day but don’t have to
  • Active ETFs must publicly disclose holdings daily
  • All ETFs must disclose holdings daily to APs

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