News

US semi-transparent ETF model providers Precidian and Blue Tractor are positioning for business in Europe after both the Central Bank of Ireland (CBI) and Luxembourg regulator (CSSF) relaxed their respective stances on transparency.

In the US, asset managers looking to deliver their investment strategies via an ETF without daily disclosure of full portfolio holdings must use one of the prescriptive models to have already received regulatory approval or develop their own.

Players such as Precidian, Blue Tractor and the New York Stock Exchange – the latter in conjunction with Natixis – have developed semi-transparent ETF templates which they license to interested managers.

ETF Stream understands that Precidian is working towards a new structure that is acceptable for regulators on both sides of the Atlantic.

Its US ActiveShares model uses trusted agents, or Authorised Participant Representatives (APRs), to execute creations and redemptions. This is unlikely to satisfy the CBI and CSSF’s requirements for disclosures to be made to liquidity providers in a ‘non-discriminatory’ manner.

In Blue Tractor’s Shielded Alpha model, the portfolio’s constituents are disclosed but published weightings deviate from actual weightings in a randomised fashion by up to 20%. A spokesperson for the firm told ETF Stream that it believes “has a place to play in the marketplace in Europe.”

The New York Stock Exchange did not respond to a request for comment.

Fidelity and Eaton Vance, the latter a subsidiary of Morgan Stanley Investment Management, opted instead to rollout semi-transparent ETFs using internally developed structures.

As to whether either is looking at Europe, Fidelity did not respond to a request for comment while Morgan Stanley declined to comment.

Since the first semi-transparent ETF launched in 2020, uptake from asset managers has been circumspect. Just 51 ETFs currently make use of reduced transparency rules in the US according to figures from ETFGI, a data consultancy.

T. Rowe Price and American Century are among the bigger names to offer strategies in semi-transparent form.

A spokesperson from American Century told ETF Stream that “while we are pleased to see the expanding regulatory support for actively managed ETFs across Ireland and Luxembourg and the opportunities that these changes may offer in the future, the near-term focus for our UCITS ETFs will be on strategies managed by Avantis Investors.”

T. Rowe Price said it has “nothing planned at present” in Europe.

Since coming to market in 2020, ETFs with reduced transparency have struggled to attract widespread demand – in part because they are limited to investing only in US securities.

As the below chart illustrates, at the close of Q1 they housed $17bn in assets under management (AUM) – just 1.8% of US-listed active ETF assets, per ETFGI numbers.