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Invesco develops non-transparent ETF model

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Invesco has filed an application with the US Securities and Exchange Commission (SEC) requesting exemptive relief to build its own non-transparent active ETF model.

“Invesco is excited to have filed with regulators for our own innovative and proprietary non-transparent exchanged-traded fund (ETF) model,” says Dan Draper, Managing Director and Global Head of Invesco ETFs. “We believe that the structure of our model will provide investors with the ability to maximise the benefits of active management through a tax-efficient1 and liquid2 ETF wrapper.”
 
The proposed Invesco non-transparent ETF model will retain a number of the characteristics that investors find attractive in an ETF wrapper, including an effective arbitrage mechanism, tax efficiency and intraday tradability. During market hours, Invesco’s proposed model will offer a clear view into an ETF’s portfolio value at regular intervals. If approved, the Invesco non-transparent model would maintain confidentiality of a fund’s strategy and help mitigate the risk of front-running by keeping a portion of the fund’s holdings confidential to the market. The Invesco affiliated broker-dealer would assist authorised participants delivering or receiving an in-kind basket of securities while executing trades to realign the creation and redemption basket to the Fund holdings. If approved, the Invesco non-transparent active ETFs will strike at least two NAVs per day, thus providing multiple creation and redemption windows to authorised participants throughout the day.
 
Daily transparency of an investment manager’s portfolio selections has created concern that it would enable traders to “front-run” an ETF’s portfolio transactions. As a result, the historical condition of daily portfolio transparency has limited the strategies available to the market through active ETFs.
 
“One of the key priorities of Invesco ETFs is offering investors a variety of choice. We believe that our model has the potential to increase the number and range of active ETFs available to investors, which may have been limited in the past by concerns of front-running,” says Draper. “By introducing a possible solution to non-transparent active ETFs, Invesco believes that there may be a way for both passive fully transparent ETFs and active non-transparent ETFs to be valuable tools in an investor portfolio.”

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