Regulators are on track to approve four new flavors of exchange-traded funds that keep their holdings secret, notching a win for active managers.
The Securities and Exchange Commission said it plans to approve active nontransparent ETFs from T. Rowe Price, Natixis, Fidelity and Blue Tractor, according to filings Thursday.
The funds will reveal their holdings at least once a quarter, rather than disclosing their portfolios every day like conventional ETFs.
The regulator is warming to the concealed holdings approach after more than 10 years of considering the concept.
Active managers say that inserting their strategies into a transparent ETF format would give away their best investment ideas and expose them to front-running. Still, they have been looking for a way to participate in the boom that ETFs enjoyed over the past decade.
Fund managers see the active nontransparent model as an entry point into the $4.2 trillion U.S. ETF market. But it's not clear whether retail investors will adopt the model in place of traditional ETFs that keep their holdings public.
"It's a big regulatory win, but now comes the hard part: trying to attract assets in an utterly brutal marketplace where nearly every cent goes into products charging 0.2% or less," said Eric Balchunas, an analyst at Bloomberg Intelligence.
All four companies plan to follow a so-called proxy basket approach, meaning they will disclose some information about their holdings every day to help market makers price their funds, just not their full portfolio.
Precidian Investments already has approval for an alternative structure that requires funds to publish an indicative value of their holdings every second. This model also uses an agency broker to confidentially buy and sell securities to help money flow into or out of the fund.