SEC to OK 4 firms’ secret-stock offerings

Non-transparent exchange-traded funds will reveal holdings quarterly, not daily

Regulators are on track to approve four new types of exchange-traded funds that keep their holdings secret, notching a win for active managers.

The U.S. Securities and Exchange Commission said that it plans to approve active nontransparent exchangetraded funds from T. Rowe Price, Natixis, Fidelity and Blue Tractor, according to filings last week. The funds will reveal their holdings at least once a quarter, rather than disclosing their portfolios every day as conventional exchange-traded funds.

The regulator is warming to the concealed holdings approach, after more than 10 years of considering the concept. Active managers say that inserting their strategies into a transparent exchangetraded fund format would give away their best investment ideas and expose them to front-running. Still, they have been looking for a way to participate in the boom that exchange-traded funds enjoyed over the past decade.

Fund managers see the active nontransparent model as an entry point into the $4.2 trillion U.S. exchange-traded fund market. But it remains unclear whether retail investors will adopt the model over traditional exchange-traded funds that keep their holdings public.

“It’s a big regulatory win, but now comes the hard part: trying to attract assets in an utterly brutal marketplace where nearly every cent goes into products charging 0.2% or less,” said Eric Balchunas, an analyst at Bloomberg Intelligence.

All four firms plan to follow a so-called proxy-basket approach, meaning they will disclose some information about their holdings every day to help market makers price their funds, just not their full portfolio.

Precidian Investments already has approval for an alternate structure that requires funds to publish an indicative value of the holdings every second. This model also uses an agency broker to confidentially buy and sell securities to help money flow into or out of the fund.

New York Life’s IndexIQ , BlackRock Inc., JPMorgan Chase & Co. and American Century Investments are among the firms that have licensed Precidian’s model.