Blue Tractor Group (Blue Tractor) has announced the alpha release of software facilitating the operation of Blue Tractor’s Shielded Alpha exchange traded fund (ETF) structure.
The Shielded Alpha ETF structure is highly transparent, disclosing to the market through the daily portfolio composition file (PCF) basket the names of a fund’s portfolio holdings, but importantly not the actual portfolio weightings, thereby fully obscuring the ETF’s investment strategy. The PCF basket will have a minimum 90 per cent asset value overlap with the fund’s actual portfolio weightings. As such, a Shielded Alpha ETF is not a non-transparent ETF. The US Securities and Exchange Commission (SEC) has yet to approve the Shielded Alpha ETF structure.
The Blue Tractor software is a secure cloud-based service that will be accessed by investment advisors and custodians to algorithmically generate the PCF basket used by ETF market makers and authorised participants for high frequency intra-day pricing, bona fide arbitrage, hedging, and in-kind creations and redemptions with the ETF. For all intents and purposes, the PCF basket for a Shielded Alpha ETF will operate identically to the PCF basket used by existing ETFs.
“We are solving the challenge for investment advisors wishing to offer actively managed funds within an ETF structure but who are concerned that requisite daily full portfolio disclosure under current SEC rules for active ETFs is detrimental to their strategy,” says Terence (Terry) Norman, Founder of Blue Tractor. “Moreover, with the PCF basket having a minimum 90 per cent asset value transparency, a Shielded Alpha ETF arguably would be more transparent than some existing ETFs. We believe Blue Tractor’s proprietary approach to structuring an actively managed ETF without daily full portfolio disclosure is a responsible step in this category’s evolution.”
Cathryn Graham, Chief Technology Officer of Blue Tractor, said: “The current software release forms the foundation for the Shielded Alpha℠ ETF structure. Our development team has done an outstanding job bringing Blue Tractor’s vision to reality. Over the coming months as the software evolves into the beta release, we look forward to incorporating the feedback received from investment advisors and custodians.”
Blue Tractor will license the software to investment advisers who wish to bring to market their own Shielded Alpha ETFs.