BlackRock iShares, one of the key players in the ETF industry, which filed to launch actively-managed ETFs, has finally received exemptive relief from the SEC. According to the exemption granted, the application was initially filed in Nov 2008 and was subsequently amended in May 2009, June 2010 and Nov 2010.
In the latest amendment, iShares specified that it is planning for the launch of two actively-managed ETFs for a start – the iShares Active Fixed Income Fund and the iShares Active Equity Fund. Both funds will be advised by BlackRock Fund Advisors:
1. iShares Active Fixed Income Fund – The objective of this fund will be to provide a combination of income and capital growth and it will use quantitative models to allocate assets amongst various sectors. Interestingly, the filing indicates that this fund will get its exposure by investing 80% of its assets in other ETFs advised by BFA that in turn invest in the fixed-income markets. So it appears that this initial fund will be looking to invest through other ETFs.
2. iShares Active Equity Fund – This fund will look to provide long-term capital appreciation and will invest in domestic large caps in general, based on the relative return potential of the securities.
Importantly, the filing states that the proposed funds will continue to provide daily disclosure of complete holdings, with a 1-day lag. This is in line with the existing active ETFs that are trading on the market. In June 2010, Bloomberg had reported that iShares is in talks with the SEC with regards to actively-managed ETFs that would “keep some of their assets undisclosed”. Another major fund company, Eaton Vance, has also been making efforts to bring non-transparent active ETFs to market.
Transparency has been seen as a key dividing issue within the active ETF space. While it is seen as an advantage for investors and also keeps the treatment of active ETFs in line with other ETFs, the general consensus is that transparency is not welcomed by active managers running the fund. Managers want to guard their intellectual property and not give away their portfolio composition everyday for fears of front-running as well as duplication.
Having received the exemptive relief from the SEC to launch these products, investors will have to wait and see if iShares follows through with its intent and brings some active ETFs to market. If they do, that will be a big boost for the active ETF space given that iShares is the largest ETF provider in the world. Its reputation as well as its marketing prowess will no doubt help in getting the word out to investors about actively-managed ETFs.
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