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T Rowe Price gets preliminary SEC approval for semi-transparent, actively managed ETFs

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The Securities and Exchange Commission (SEC) has granted preliminary exemptive relief to T Rowe Price to offer semi-transparent exchange-traded funds (ETFs), paving the way for the firm launch ETFs that employ its longstanding actively managed investment approach.

T Rowe Price has been engaged in constructive dialogue with the SEC about the potential launch of semi-transparent active ETFs for several years and first filed for exemptive relief in 2013.

While the preliminary SEC approval clears an important hurdle toward T Rowe Price offering ETFs, additional regulatory steps must take place before the firm can launch any ETFs. 

T Rowe Price is still determining which investment strategies may be available as semi-transparent ETFs, though it will begin by offering certain US equity strategies.

The semi-transparent structure, which is an alternative to the daily portfolio disclosure structure used by conventional transparent ETFs, would allow T Rowe Price to deliver its active strategies in an ETF wrapper without disclosing information that could be harmful to the interests of fund shareholders.

ETFs have become popular with individual investors and their financial advisors in recent years because of their tax efficiency, low-cost structure, and convenience. Due to regulatory requirements for daily portfolio transparency, most current ETFs are based on passively managed strategies.  By contrast, T Rowe Price’s active ETFs will give investors the opportunity to pursue alpha beyond a passive index.  They will do this by leveraging the firm’s strategic investing process, which is characterised by rigorous fundamental research and active decisions executed by skilled, experienced portfolio managers.

Tim Coyne, Head of Exchange-Traded Funds at T Rowe Price, says: “Passively managed, index-based strategies have fuelled the growth of ETFs thus far.  But we believe that semi-transparent, actively managed ETFs from a trusted brand like T Rowe Price have the potential to gain traction with investors and advisors who are already interested in active management but who might prefer the ETF structure. We believe this is a significant milestone that will lead to opening a new avenue for our business.”

George Riedel, Head of US Intermediaries at T Rowe Price, says: “T Rowe Price’s semi-transparent, active ETFs will be a new way for investors to access our longstanding investment capabilities. As marketplace preferences evolve, we want to be able to deliver our investment capabilities in formats investors prefer, whether that is an open-end mutual fund, an ETF, or something else, like a separately managed account or a collective investment trust.”

Scott Livingston, Head of Global ETF Product at T Rowe Price, says: “We are grateful to the SEC for their expertise and guidance as we worked collaboratively toward securing this preliminary exemptive relief for T Rowe Price ETFs. It’s important to meet investors where they are, and we believe that our ETFs will effectively complement our existing product structures.”

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