THE TRANSPARENCY CHALLENGE
Writing in January 2018 Robert Malone, client management, HSBC Securities Services, noted that active ETFs were a ‘challenging proposition’. Firstly, he raised the point of costs as ETF issuers will have to balance the expectation for low costs on exchangetraded funds.
In Malone’s words: ‘Managers are going to have to find a pricing point which is attractive to ETF investors but which keeps the lights on.’
His second concern relates to transparency. Whereas a traditional active fund only publishes a full list of its portfolio periodically (if at all), ETFs traditionally publish the full list of underlying investments daily.
Malone adds: ‘How can an investment manager in this scenario expect to be as effective? It’s the equivalent of starting a hand of poker by showing your opponents your cards.’
It is not yet clear if solutions such as introducing a timing lag to publication of the composition of a portfolio will meet with the requirements of global regulators, although that approach is being adopted by the likes of Robo Global.