One of Wall Street’s hottest innovations is being hailed as the potential key to luring trillions of actively managed dollars to the booming market for exchange-traded funds. Yet two of the industry’s biggest players want no part of it for now.

Vanguard Group and State Street Corp. say they’re in wait-and-see mode as active, non-transparent funds take their crucial first steps in the $4.3 trillion U.S. arena for ETFs.

These products come with many of the benefits of traditional ETFs but drastically reduced disclosure requirements. That makes so-called ANTs a likely conduit to bring stock-picking strategies to the exchange-traded universe.

The market’s largest player, BlackRock Inc., has already filed to use the structure after the funds debuted in April. JPMorgan Chase & Co. -- which also plans its own ANTs -- estimates non-transparent ETFs could ultimately command more than $7 trillion in assets.

Vanguard, No. 2 in ETFs, is in no rush to wade into untested waters, according to its head of ETF product management.

“This is an opportunity for us to learn from what others are doing,” Rich Powers said in an interview. “Investors make their way to great active strategies, regardless of whether it’s first to market.”

Slow Start
So far, it seems they have yet to flock to ANTs.

After being in the making for almost a decade, six non-transparent ETFs have launched to date from three issuers: American Century Investments, Legg Mason Inc. and Fidelity Investments. Five follow large-cap equities and one tracks mid-cap stocks.

Collectively, they have attracted more than $240 million in assets, with the $136 million American Century Focused Dynamic Growth ETF leading the pack. Performance is mixed: Half of the new products are handily beating their benchmarks, two are lagging, and one is neck and neck.

In the eyes of State Street’s Rory Tobin, there are two big hurdles to attracting investors to this new type of fund. First, the sheer dominance of passive strategies, which account for more than 95% of all U.S. ETF assets. Second, the relative cost of the ANTs.

“You’ve got your investment proposition, you’ve got your ETF mechanics, and then there’s the economics,” said Tobin, global head of State Street’s SPDR ETF business. “How do investors feel about the price point at which these are being positioned?”

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