Goldman Licenses Fidelity's Nontransparent ETF Structure

Fidelity is among a handful of asset managers who have developed actively managed ETF structures whose holdings are not disclosed on a daily basis that have been approved by the Securities and Exchange Commission. Its methodology uses a tracking basket that consists of actual ETF holdings, representative ETFs, and cash and cash equivalents and that will be disclosed daily before trading begins. Included in that disclosure is the percentage the tracking basket overlaps with the actual portfolio holdings. The disclosure of actual portfolio holdings is done on a monthly basis with a 30-day lag.

To date, only two nontransparent ETFs have started trading: the American Century Focused Dynamic Growth ETF (FDG) and American Century Focused Large Cap Value ETF (FLV), which use Precidian Investments' ActiveShares methodology. Many others are waiting in the wings, including several from Fidelity itself.

Trading in American Century's nontransparent ETFs, which it refers to as semitransparent, has been light but prices have been steady or rising and, according to Dave Nadig, chief investment officer of ETF Trends, "spreads have been good."

The experience of the American Century funds "proves that these ETFs can function," said Todd Rosenbluth, head of ETF & mutual fund research at CFRA. "That should give asset managers confidence to take the next step." Still unclear, according to Rosenbluth, is "whether there will be overwhelming demand" for these ETFs and "whether advisors and investors will care about the structure behind the ETF or only focus on brand name, investment process, performance and cost."

As for GSAM's licensing of Fidelity's methodology, both Rosenbluth and Nadig agree that the pact provides the firm options once it decides to create a nontransparent ETF under its own brand. GSAM began offering ETFs in September 2015 with the launch of the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC). As of March 31, 2020, it had 19 ETFs with over $14 billion in assets under management.

— Related on ThinkAdvisor:

• Will Nontransparent ETFs Be Transformational?
• First Nontransparent ETFs Start Trading