Providers of active non-transparent ETFs have spent much of 2020 educating home office staff about the structure
Providers of active non-transparent ETFs have spent much of 2020 educating home office staff about the structure © AFP via Getty Images

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Concerns about limited uptake by distributors of non-transparent exchange traded funds in the near term drove AdvisorShares to change its mind about using the structure for two recently launched ETFs, the company’s chief executive has said.

AdvisorShares, an active ETF specialist, launched the Q Dynamic Growth and Q Portfolio Blended Allocation ETFs at the end of December. The products had received the green light to use Precidian Investments’ ActiveShares methodology that allows active non-transparent ETFs to skirt daily full portfolio disclosure requirements. However, instead the ETFs launched as fully transparent active ETFs.

The company switched its plans because broker-dealer due-diligence policies and procedures were not quite ready to accommodate active non-transparent ETFs, said Noah Hamman, chief executive of AdvisorShares.

“That is a challenge for a small firm like us, as we need the broadest distribution opportunity possible,” Mr Hamman said. “So everyone became comfortable with being fully transparent on launch to have the broadest distribution possible, and then reassess later.”

This article was previously published by Ignites, a title owned by the FT Group.

Mr Hamman said the company was in conversations with other partners about using the ActiveShares model.

“Most of the platforms are taking their time evaluating these products,” Nick Elward, Natixis’s head of institutional product and ETFs, told Ignites last month.

Providers of active non-transparent ETFs have spent much of 2020 educating home office staff about the structure and learning how their products will be assessed. While distributors are crafting evaluation criteria, each platform is going to have its own approach, ETF executives said. Many platforms will require lengthy track records and substantial assets before approving any ETFs, including those that do not reveal their exact portfolio holdings, they added.

“It’s not an easy sell, because distribution isn’t easy,” said Terry Norman, the cofounder of Blue Tractor Group. Blue Tractor has focused on licensing its Shielded Alpha ETF methodology to small managers with innovative strategies, as well as product development and administration platforms that support such managers.

The first Blue Tractor ETFs are expected to launch in early 2021. The company hopes that an increase in non-transparent products on the market will allow distributors to grow more comfortable with the structure and make access more straightforward for future products, Mr Norman said.

The non-transparent ETF adoption curve is shaping up to be a familiar one for AdvisorShares. “We saw this in the early days of fully transparent active ETFs. There were both regulatory limitations on strategy, and broker-dealers were just starting to restrict new ETFs from being immediately available to investors,” Mr Hamman said.

But the coronavirus pandemic probably affected distributors’ ability to put some due-diligence metrics in place for non-transparent strategies, he noted.

Ultimately, AdvisorShares wants to launch an ActiveShares ETF with either sub-advisers that might be able to seed ETFs with internally managed money or companies that have focused distribution efforts with broker-dealers that are open to ActiveShares.

“I expect we will have several launched in 2022,” Mr Hamman said.

*Ignites is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at

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