Given one of the unique attributes of the ETF is transparency, this ruling isn’t surprising.
Elisabeth Kashner, head of research at ETF.com explained at the time that it highlights the problems with price discovery. “The SEC has not only preserved the arbitrage mechanism at the heart of ETFs, but also laid bare longer-term due-diligence problems that arise when investors can’t see what they hold.”
The SEC explained its decision: “Today, market makers calculate their own NAV per share of the ETF with proprietary algorithms that use an ETF’s daily portfolio disclosure and available pricing information about the assets held in the ETF’s portfolio. They generally use the IIV [intraday indicative net asset value], if at all, as a secondary or tertiary check on the values that their proprietary algorithms generate.”
In the ETF space, active management is still to gain momentum. A report by Wealth Management Solutions provider SEI in March last year put active ETF assets under management at around $12.6 billion – which is tiny in comparison to the $2.64 trillion sized ETF industry.
There are several reasons for this. For one, many renowned and famous active managers currently run mutual funds and hedge funds, and charge high fees for their services. As such, these managers are understandably reluctant to migrate to lower-fee ETPs.
Added to this is defining exactly what they are is still a work in progress. Is an active ETF one that is actively managed by a fund manager, or is it the strategy that is active?