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US active managers evaluate launching non-transparent ETF products

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Several firms are vying to offer non-transparent ETF structures with key differences in the mechanics used to obfuscate holdings, according to a new report from Cerulli, which reveals that active managers are highly interested in offering their strategies via non-transparent structures as they present a unique distribution opportunity with little downside. 

Of the asset managers surveyed by Cerulli, 46 per cent indicated that they would build out non-transparent ETF capabilities should a proposal be approved by the SEC. A further 55 per cent of those respondents indicate that they would launch an equity strategy within a year.

The report, which analyses mutual fund and ETF product trends as of March 2019 and provides special coverage on the future of investment management, also finds that mutual fund assets stand poised to crack the USD15 trillion barrier, finishing March just USD12 billion below the mark. In October 2010, total ETF assets remained under the USD1 trillion threshold, sitting at USD924 billion. Fast forward less than nine years, total ETF assets closed March at USD3.8 trillion. Mutual fund net flows outpaced ETFs during 1Q 2019, attracting USD80.7 billion compared to USD52.7 billion.

Cerulli’s data also highlights that most advisors (65 per cent) intend to use lower-cost share classes in the future. Platform/wrap shares, institutional shares, and other clean shares (excluding R6-shares) are the clear beneficiaries of the use of lower-cost share classes. Combined, these three share class types accounted for 57.8 per cent of asset managers’ (within Cerulli’s survey sample) 2017 gross sales. From the advisor perspective, platform/wrap shares and institutional shares accounted for 17.4 per cent and 19.2 per cent of 2017 practice sales, respectively, and project to see increases over the next 12 to 24 months by at least 27 per cent of advisors.

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