ETFs
Wall Street’s Black Box ETFs Snubbed in $136 Billion Active Boom
(Bloomberg) — They have been touted as key players in the U.S. ETF industry, promising to revive the art of stock picking for Wall Street managers who fear their strategies will be copied by imitators.
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But four years after their debut, actively managed strategies that only periodically disclose their holdings are slowly disappearing – and missing out on the huge harvest enjoyed by their transparent counterparts.
Active non-transparent ETFs (ANTs) — or semi-transparent funds, as they’re also known — have garnered a modest $9 billion in assets since 2020. That’s just over 1% of total assets in actively managed exchange-traded funds, according to data compiled by Bloomberg and a JPMorgan team that includes Bram Kaplan.
At the same time, active ETFs have accounted for more than 60% of new fund launches in each of the past four years, according to JPMorgan. Over the past year, they generated a quarter of all ETF inflows in the U.S.
The difficulties of less transparent funds can be summed up in a simple explanation: investors not only like to know what they own, but also hate paying for something that might have a cheaper alternative.
“Investors want to see what stocks they own. ETFs were built on transparency and this is a step backward,” said Athanasios Psarofagis of Bloomberg Intelligence. “The strategies are not very inspiring: there are a lot of large-cap funds. Most of them hold the same stocks as the S&P, and it’s not impressive that you’re hiding the fact that you own Apple.”
To catch up, fund managers like IndexIQ and Fidelity have converted some of their semi-transparent ETFs into more transparent products in recent months. They are following similar moves by Franklin Templeton and Nuveen, the latter of which converted a growth ETF late last year that had once ranked as the largest such product by assets. A few others have simply shut down their offerings.
There are a handful of semi-transparent funds that are seeing inflows this year. The Fidelity Blue Chip Growth ETF (ticker FBCG) brought in the most in 2024 — $630 million — followed by the T Rowe Price US Equity Research ETF (TSPA), with $608 million, according to data compiled by Bloomberg.
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Nonetheless, year-to-date inflows for the cohort amount to around $2.6 billion, compared to $136 billion for the overall active ETF universe over the same period.
“Indeed, the vast majority of assets and inflows into active ETFs are in transparent active funds,” wrote the JPMorgan team, which includes Kaplan, “demonstrating that portfolio transparency need not be a barrier to the success of an active ETF strategy.”
One reason semi-transparent funds have not attracted much attention is the cost of fees, according to Todd Sohn, ETF strategist at Strategas. Because this category of funds claims to offer specialized stock-picking expertise, issuers have been able to charge them more. The average fee is 0.6%, according to data compiled by Bloomberg. By comparison, the median fee charged for all ETFs is 0.5%.
“Fees are important in the ETF space. Semi-transparent ETFs have tried to remove what was fundamentally a free and fundamental aspect of ETFs — the ability to see holdings every day —,” Sohn said. “It’s like saying your free coffee will now cost $5.”
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