US relaxes active ETF disclosures

Australia's active ETF industry could benefit as the US securities regulator softens its stance on daily disclosures for the segment.

The U.S. Securities and Exchange Commission last week allowed an ETF provider to trade active ETFs without making daily disclosures.

The SEC had previously rejected Precidian Investments' bid over concerns about whether the funds' prices would track their holdings.

But now, it will now approve the proposal unless its commissioners decide to order a hearing.

As a result, active ETFs in the US will still have to disclose daily holdings, but only to a new subset of professional trader called 'authorised participant representatives'.

The public will receive the portfolio holdings on a quarterly basis, like Australia, according to Sydney-based manager Antipodes Partners.

Pinnacle Investment Management director of listed products Chris Meyer said the move could speed up active ETF adoption in Australia in addition to in the US.

"As the active ETF market grows in the US, increased education on what active ETFs are and the benefits they offer for investors should help stimulate interest in, and adoption of active ETFs in Australia. That bodes well for the industry's growth," Meyer said.

In Australia, actively-managed exchange traded products account for just 7% of the total $45.8 billion market.

And it is dominated by Magellan which has more than half of the 7% slice.

Meyer says the new rules could nudge active fund managers towards exchange-traded vehicles.

"The move could potentially spur many more fund managers to offer more active ETFs while allowing them to protect their intellectual property of the securities they own by not revealing their portfolio changes to market on a daily basis."

"The decision is considered a win for active stock pickers who do not want to reveal their holdings for fear front runners and others may seek to capitalise on predicting their next move."

"We are very appreciative of the SEC's engagement with us to thoroughly vet and address a process that we believe will help the industry better serve investors," Precidian chief executive officer Daniel J. McCabe said.

"We applaud the vision of the Commissioners in making this a reality. For the first time, investors will be able to access actively-managed ETFs that do not disclose their holdings on a daily basis but trade and operate in a similar manner to other ETFs."

Legg Mason owns a stake in Precidian.

Read more: ETFActive ETFSECPinnacle Investment ManagementChris MeyerMagellan
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