An exchange-traded fund structure that enables actively managed funds to not have to reveal their assets is poised to get regulatory blessing after a more than four-year wait.
The Securities and Exchange Commission plans to issue an order granting Precidian Funds permission for the new type of ETF, the watchdog said in a notice Monday.
Market participants can still request a hearing through May 3, the regulator said. If granted, that could potentially delay or derail the final approval. The funds also need permission to start trading from another division of the SEC. The decision is a huge win for stock pickers who have long pushed back against a requirement that funds publish their investing positions daily.
They assert that revealing an active ETF’s holdings so regularly may leave a fund exposed to front runners seeking to capitalize on predicting its next move. That concern has seen the likes of $1.1 trillion asset manager T. Rowe Price Group Inc. and $1.6 trillion Capital Group Cos. remain on the sidelines of the $3.8 trillion market.
“This is a truly exciting new product that can revolutionize the way that investors approach ETFs,” said Thomas Hoops, head of business development for Legg Mason Inc., which has a stake in Precidian and has licensed the new structure.
“We can couple the benefits of the ETF wrapper with active management expertise, while protecting investors and our portfolio managers’ intellectual property,” he said in an emailed statement from Precidian.
SEC Votes
If given the final nod, Precidian will calculate and disseminate the indicative value of its ActiveShares ETFs every second to help the fund’s price stay in line with the value of its underlying assets, and will use agents who can see the funds’ holdings to help move cash in and out, according to regulatory filings.
The Bedminster, New Jersey-based company plans to report its funds’ holdings once a quarter, like a mutual fund.
Robert Jackson, an SEC commissioner, voted against issuing the notice allowing Precidian’s plans to proceed, according to an emailed statement from his office.