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New research on semi-transparent ETF opportunities for asset managers

Fintech advances have led to semi-transparent ETF models that may overcome asset managers’ reluctance to embrace ETFs. UMB Fund Services partnered with FUSE Research Network to publish a paper exploring the semi-transparent marketplace and model variations at a time when new product development in the active ETF space is increasing significantly.

ETFs are growing

Semi-transparent ETFs are in their infancy but growing steadily in number and assets. The regulatory green light has led innovative structures launched by Precidian, Fidelity, NYSE/Natixis, Blue Tractor and T. Rowe Price. Other models from other managers are pending approval. Recent conversions by Dimensional Fund Advisors and Guinness Atkinson have drawn industry attention.

In our conversations with asset managers considering a mutual fund to ETF conversion or ETF launch, we are regularly asked about:

  • Legal and operational factors to consider for a mutual fund to semi-transparent ETF conversion
  • Strategies better suited to ETF conversions and what semi-transparent models might fit best
  • Costs associated with marketing, administration and distribution of ETFs
  • Introductions to market makers, listing exchanges and Authorized Participants (APs)
  • Account types ineligible for ETF conversions

For managers considering these and other practical questions, the new report from UMB Fund Services and FUSE Research Network provides a solid foundation.

Access a copy of the report: Semi-Transparent ETFs: Nascent Product Opportunity for Managers

The ETF landscape

In the asset management industry, widespread availability of active exchange-traded funds (ETFs) has been prognosticated for the better part of the last 20 years. However, various forces, including a desire among active equity managers to shield their portfolio holdings and an incentive for the industry to protect the trillions of dollars in mutual fund assets, kept active equity ETFs in the concept stage of development. Meanwhile, the ETF marketplace continued to expand its reach beyond asset-weighted equity index portfolios to include smart beta ETFs that alter indexes to pursue a wide variety of investment objectives, as well as transparent fixed-income ETFs.

In recent years, though, advancements in Fintech have led to the creation of several models that allow for non-transparency or semi-transparency of equity holdings in ETFs. This has coincided with the ongoing displacement of active equity mutual fund assets by passive equity ETFs, finally pushing active equity ETFs from concept to reality.

Learn more about UMB Fund Services and how we can support your firm’s registered and alternative investment fund administration needs, or contact us to be connected with a fund services team member.

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