Of the 2,900 funds U.S.-listed ETFs currently on the market, about 50 actively managed ETFs do not disclose their holdings on a daily basis.
At least six firms offer models that can be licensed by issuers to launch such products, which fully disclose their holdings on a monthly or quarterly basis.
“Nontransparent” actively managed ETFs were roughly a decade in the making, and excitement about the potential of such products had reached frenzied heights when the first ones launched—right on the heels of the U.S. market’s 2020 COVID crash.
Those first two funds, the American Century Focused Dynamic Growth ETF (FDG) and the American Century Focused Large Cap Value ETF (FLV), have since accumulated roughly $360 million in combined assets. But the question remains as to whether the concept has lived up to expectations in the two years since that first launch.
Issuer Interest Seems Mixed
Consider that in the time since the first nontransparent ETFs rolled out, we have seen unprecedented numbers of launches, with new actively managed funds outpacing the funds’ tracking indexes during the last few years.
In the lead-up to their launch, we heard how nontransparent actively managed ETFs could bring a range of mutual fund issuers into the space since they wouldn’t have to reveal their secret sauce, and how the SEC was holding back the opening of the floodgates.
But the ETF Rule seems to be the reason active ETFs are proliferating, not the ability to keep holdings hidden. Nontransparent actively managed ETFs have been available for two years, and we’ve seen several new issuers devoted to active management like T.Rowe Price, Gabelli and Putnam launch nontransparent funds.
But Capital Group, Neuberger Berman, Dimensional Fund Advisors and Federated Hermes are also well-known large active managers who entered the ETF space after the approval of nontransparent models yet opted to launch fully transparent actively managed ETFs.
In fact, Dimensional has even said the approval of nontransparent models had nothing to do with its decision, but rather that the ETF Rule allowing custom baskets for active funds was instrumental in their entry to the ETF space.
Capital Group initially requested permission to launch nontransparent funds using the Fidelity model, but ultimately went with launching fully transparent actively managed equity ETFs for its first foray into the market.
Share Of The Space
The largest nontransparent actively managed ETF currently trading is the $2.6 billion Nuveen Growth Opportunities ETF (NUGO), which launched in September 2021.
The fund saw repeated daily influxes of $200 million, with the fund pulling in nearly $3.3 billion in the last quarter of 2021 as Nuveen shifted assets from the TIAA-CREF Large-Cap Growth Index Fund into NUGO. By the end of 2021, the vast majority of the assets invested in NUGO was in-house money.
NUGO is nearly seven times larger than the next largest nontransparent active ETF, the $379.9 million Fidelity Blue -Chip Growth ETF (FBCG). There are only eight ETFs that have more than $100 million in this category, including NUGO. The vast majority of the funds have under $100 million in assets under management, with roughly two-fifths having less than $10 million.
Still, there are many notable names in the space, with Fidelity, Schwab, Invesco, DoubleLine and Natixis among the other firms that have launched these types of products.
| Ticker | Fund | Launch Date | Exchange Listing | Model | AUM ($) | Expense Ratio |
| NUGO | Nuveen Growth Opportunities ETF | 9/27/2021 | NYSE Arca | Natixis/NYSE | 2.6B | 0.55% |
| FBCG | Fidelity Blue Chip Growth ETF | 6/3/2020 | Cboe Global Markets | Fidelity | 379.9M | 0.59% |
| TCHP | T. Rowe Price Blue Chip Growth ETF | 8/4/2020 | NYSE Arca | T. Rowe Price | 247.3M | 0.57% |
| FLV | American Century Focused Large Cap Value ETF | 3/31/2020 | Cboe Global Markets | Precidian ActiveShares | 222.1M | 0.42% |
| FDG | American Century Focused Dynamic Growth ETF | 3/31/2020 | Cboe Global Markets | Precidian ActiveShares | 142.8M | 0.45% |
| ESGA | American Century Sustainable Equity ETF | 7/13/2020 | NYSE Arca | Natixis/NYSE | 135.9M | 0.39% |
| TDVG | T. Rowe Price Dividend Growth ETF | 8/4/2020 | NYSE Arca | T. Rowe Price | 135.0M | 0.50% |
| FBCV | Fidelity Blue Chip Value ETF | 6/3/2020 | Cboe Global Markets | Fidelity | 113.0M | 0.59% |
| TEQI | T. Rowe Price Equity Income ETF | 8/4/2020 | NYSE Arca | T. Rowe Price | 88.2M | 0.54% |
| HFGO | Hartford Large Cap Growth ETF | 11/9/2021 | Cboe Global Markets | Fidelity | 65.7M | 0.59% |
Source: Factset, 5/6/2022
In Perspective
The anticipation of less–than–fully transparent actively managed ETFs may have created unnaturally high expectations around the concept. When they came out two years ago, there was a vague idea that active managers from the mutual fund arena would flood into ETFs to tap that fresh market. As previously noted, that’s not exactly what happened.
Fully transparent actively managed ETFs are clearly having a renaissance, even though the vast majority of ETF assets and flows are located in plain vanilla passively managed funds. The idea of a “secret sauce” driving outsized active management returns has never found much favor with the ETF audience.
Consider that the most widely followed active manager in the ETF space, ARK’s Cathie Wood, is well-known for her transparency.
Although the ARK funds have taken a beating in the past 18 months in terms of performance, they haven’t seen commensurate outflows. And ARK is all about transparency—Cathie Wood is very open about her trades, and the holdings of all her funds are, of course, posted daily.
The firm also publishes its research regularly on its site. And its openness has been rewarded—ETF investors like transparency.
The nontransparent model offered by Blue Tractor charts a course around this by fully disclosing the actual holdings in a fund, but with their weights altered. The other versions rely on some sort of proxy portfolio or a third party to obscure a fund’s true holdings.
However, the real issue seems to be that ETF investors are comfortable with full transparency and don’t really see it as detrimental to returns.
You can find a full list of nontransparent actively managed ETFs here.
Contact Heather Bell at [email protected]
