Last week, the Australian Securities & Investments Commission (ASIC) lifted a nearly 6-month pause on the introduction of new ‘active’ ETFs.
With this announcement, it has been forecast active ETFs will boom in Australia in the coming months.
For active managers, this could mean more opportunities and exposure in managing new ETFs, and for investors, more ETF products on the market.
For nearly 30 years, ETFs have been typically a ‘passive’ investment, tracking an index or sector. Their appeal is largely driven by price, portfolio diversification, liquidity and transparency.
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The issue of ‘transparency’, however, comes into question with active ETFs. Actively managed ETFs are newer on the scene, and allow the executor or manager of a fund to select stocks and make bids/offers as they see fit. These ETFs do not necessarily disclose their portfolio composition and position daily.
This and other non-transparent ETF practices raised market integrity concerns, and in July of this year ASIC put an official pause on the introduction of any of these new ETFs.
For many active managers, revealing their personal investment strategy was not ideal. Non-transparent ETFs seemed a happy medium in the sense that they remain reasonably priced and liquid enough for intraday trading, but offered managers the ability to keep their particular strategy private.
What followed has been a nearly half-year review, with the ultimate result being ASIC lifting the ban. They have announced they were satisfied for Active ETF Managers to make said trades without disclosing portfolio information daily, and to act with their investors best interests in mind.
There are, of course, stipulations to this. ASIC have stated they want more transparent pricing on ETFs. In addition, ASIC requires “There are adequate arrangements for identifying and responding to instances of substantial information asymmetry in the market, which may include cessation of market making activities or requesting a trading halt.” Essentially this, and other regulations, are in place to ensure:
Now that new ETFs are once again allowed to be created and traded, it is expected that there will be an increase in actively managed ETFs available. So, what are the key things to consider if you’re looking to invest in an active ETF?
Active ETFs can be invested in through a broker, or by using an Online Share Trading platform. Be sure to do your due diligence prior to making any investment decisions.
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