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KPMG Paper Makes Business Case for Non-Transparent ETFs

A new whitepaper from KPMG delivers a plain-language resource on non-transparent ETFs. The SEC earlier this year approved non-transparent ETFs, which like mutual funds, are permitted to reveal positions quarterly to prevent front-running of trading ideas. The KPMG paper covers topics including: how to structure a nontransparent ETF; the top concerns fund managers should anticipate; and keys to building a successful ETF. Precidian was the first to gain SEC approval for its ActiveShares non-transparent ETF and firms including Capital Group Cos., American Century Legg Mason Inc. and JPMorgan have launched or plan to launch their own non-transparent ETFs. KPMG writes that non-transparent ETFs can mean more responsibility for fund managers since they involve more work and greater responsibility to coordinate trading activities than traditional, passive ETFs. Non-transparent ETFs may also bring in lower fee revenue and less support from service providers that are not equipped to operate such products. However, the advantages include broadening managers’ access to investor groups and creating an ETF vehicle for an existing active management strategy. The paper also discusses how managers may increase their chances of success with non-transparent ETFs by recruiting the right talent and locking in effective operations and distribution platforms, among other considerations.

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