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Rating:An Active Giant Sails Into the Translucent ETF Biz Not Rated 0.0 Email Routing List Email & Route  Print Print
Tuesday, July 07, 2020

An Active Giant Sails Into the Translucent ETF Biz

Reported by Alex Rogers

After nearly a decade in the works, a big, publicly traded, active mutual fund firm is getting their start in the ETF market with active, translucent ETFs.

Timothy John Coyne
T. Rowe Price
Head of Exchange-Traded Funds
Yesterday, the folks at T. Rowe Price [profile] confirmed that the SEC has approved four new active ETFs, which will be listed on NYSE Arca. They expect to launch the ETFs this quarter. Stay tuned for them to prep more ETFs, and alliances with other asset managers might be in the cards, too.

Tim Coyne, head of ETFs at T. Rowe Price, described the venture into active ETFs as “The meeting of the right structure with our approach to asset management.”

"We finally have the regulatory approval and the structure we feel comfortable with bringing our product to market," Coyne told MFWire. "This is the structure we feel confident in, in terms of shielding the IP while providing enough data and pricing data to market makers."

The soon-to-debut ETFs are the Blue Chip Growth ETF, the Dividend Growth ETF, the Equity Income ETF, and the Growth Stock ETF. They are advertised as using both the same investment strategies and managers as the mutual funds that they each correspond to.

Unlike index-tracking ETFs, other passive ETFs, and some active ETFs, which generally divulge their holdings daily, T. Rowe's active ETFs will be translucent (i.e. semi-transparent or "non-transparent"), meaning their holdings will be divulged less frequently, like a traditional open-end mutual fund.

Craig Siegenthaler, senior equity research analyst at Credit Suisse, wrote about T. Rowe's first batch of ETFs, saying: "The 4 [ETFs] replicate [T. Rowe Price's] existing mutual fund strategies & provide several advantages (liquidity, cost, tax efficiency). TROW will use its proprietary proxy model (not in-kind redemptions like Precidian)."

Translucent ETFs are relatively new, with the SEC first granting special conditional approval to such a structure (from a different firm) back in April of 2019. The structure is meant to make offering ETFs more friendly to active managers so they can preserve the sanctity of their 'secret sauce' (i.e. their day-to-day investment shifts and strategy) more easily.

The journey to translucent, active ETFs began for T. Rowe Price in 2010, and they submitted their first private filing on the matter to the SEC in 2011. They were eventually granted their own approval on December 10, 2019.

Regarding the plans for future ETFs, Coyne said, "Product strategy and development is ongoing now. We're looking across our product suite ... We're looking at other strategies that would benefit investors and could be delivered in an ETF structure."

"Our ETF strategy is very closely aligned with the broader T Rowe Price strategy ... Advisors have become more familiar with ETFs, more comfortable with ETFs, and have even developed a preference for ETFs," he added.

Watch for the T. Rowe team to potentially make strategic alliances with third-party managers interested in the new structure, too.

Coyne told MFWire, "Other asset managers are looking at the development of their own strategies and also looking at the different models to bring their products to market ... We've had conversations with other asset managers." 

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