THE TRANS­PARENCY CHAL­LENGE

Shares - - EXCHANGE-TRADED FUNDS -

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.

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