Legg Mason affiliate launches semitransparent ETF

Legg Mason, working with its affiliate ClearBridge Investments, has become the second asset manager to launch a semitransparent exchange-traded fund.

The ClearBridge Focus Value ETF (CFCV) follows two semitransparent ETFs that were launched April 2 by American Century, which was the first fund company to navigate the regulatory approval process for the unique fund wrapper.

The ClearBridge fund employs semitransparent fund technology from Precidian Investments, which is majority-owned by Legg Mason and is the only model not relying on portfolio proxies to enable market makers to price portfolios.

“This is more transparent than most mutual funds on the market,” said Dan McCabe, chief executive of Precidian.

“We’re not using anything synthetic; it is what the portfolio is,” McCabe said. “I think you’ll see more people filing on the Precidian model.”

The ClearBridge fund is a concentrated portfolio of fewer than 40 securities that will trade throughout the day like other ETFs, but only disclose its portfolio holdings quarterly, as mutual funds do.

The new fund is not an exact clone but will be managed by the same team managing the ClearBridge Large Cap Value Fund (SAIFX), which holds between 50 and 60 securities.

“Our philosophy is to focus on high-quality franchises that have been temporarily mispriced,” said Dimitry Khaykin, co-portfolio manager.

“The launch of this innovative ETF structure with Precidian, ClearBridge and other industry partners is the perfect example of how we have sought to provide investors with better choice of vehicles and strategies,” Joseph Sullivan, chairman and CEO of Legg Mason, said in a statement.

The actively managed fund industry has been pushing the semitransparent ETF wrapper through the regulatory gauntlet for more than a decade while promoting it as in response to investor demand.

That demand, however, remains to be seen.

The fund industry was widely expected to start rolling out nontransparent ETFs in January, but some of those launches might have been delayed as a result of the COVID-19 pandemic business shutdowns.

Meanwhile, the two American Century funds combined have taken in only about $31 million since their April 2 launch.

“We are in the early days of active equity ETFs, but the ClearBridge group within Legg Mason has a strong actively managed fund lineup that could help generate investor interest,” said Todd Rosenbluth, director of mutual fund and ETF research at CFRA.

“Given the ownership relationship of Precidian, we would expect Legg Mason will significantly support the fund out of the gate with assets in hopes to jump-start demand and get the fund above the minimum asset base requirements for many gatekeepers,” Rosenbluth said. “However, I’d note that JPMorgan launched two active and fully transparent equity ETFs last week despite having a license to use the Precidian semitransparent structure.”

While it is difficult to get a true sense of the appetite for the funds in an environment overshadowed by a global pandemic, the asset management industry is clearly banking on all manner of active ETF wrappers to help head off the flow of money out of active mutual funds.

At least a dozen asset managers have filed under various licensing models to launch semitransparent ETFs.

Earlier this month, Gabelli Funds filed nine semitransparent ETFs, which would license technology from Fidelity Investments. Goldman Sachs also filed a licensing agreement with Fidelity, despite already having a agreement with Precidian.