As active managers, Natixis depends upon the diverse opinions, deep data, and detailed analysis of our global platform of independent managers. Their work is proprietary – meaning that the daily holdings disclosures mandated by the active transparent ETF vehicle could expose them to the risk of other money managers free-riding on their portfolio allocations or front-running their trades. To further develop in the ETF space, the Natixis ETF team began seeking a way to offer our clients access to our managers’ portfolio construction expertise within an ETF vehicle while protecting that expertise from copycats and front-runners.
Non-transparent Active ETFs
Unlike traditional active ETFs, active non-transparent ETFs do not have to disclose all of their holdings each trading day, which keeps the proprietary work of the management team private and protects it from predatory trading. In 2017, Natixis and the New York Stock Exchange (NYSE) reached an agreement to work together to bring active non-transparent EFFs to market, with NYSE acting as the servicing agent to design the new ETF vehicle type and Natixis acting as the investment manager. As a result, Natixis and the NYSE filed a request with the US Securities and Exchange Commission (SEC) for permission to launch such an active non-transparent ETF strategy. After many rounds of discussion, the SEC approved the filing in 2019.
We believe the service model designed by the NYSE for the new Natixis ETF strategy strikes an important balance. Specifically, the model allows portfolio managers to provide transparency where they can – such as on stocks they are not actively trading – and non-transparency where it’s necessary, such as when they are establishing or changing a position. NYSE also offers educational support and its ecosystem of ETF expertise to Natixis and our clients.
As we look ahead, Natixis is excited about entering the active non-transparent ETF market, with an innovative ETF strategy designed to deliver investment returns, tax efficiency, and cost effectiveness. If you have questions about Natixis ETFs or the NYSE active non-transparent ETF service model, please contact your Natixis relationship manager.
Active non-transparent ETFs are different from traditional ETFs. Traditional ETFs tell the public what assets they hold each day. Non transparent ETFs will not. This may create additional risks for your investment. For example, you may have to pay more money to trade the ETF’s shares. The ETF will provide less information to traders, who tend to charge more for trades when they have less information. The price you pay to buy ETF shares on an exchange may not match the value of the ETF’s portfolio. The same is true when you sell shares. These price differences may be greater for a Non transparent ETF compared to other ETFs because it provides less information to traders. These additional risks may be even greater in bad or uncertain market conditions. The ETF will publish on its website each day a “Proxy Portfolio” designed to help trading in shares of the ETF. While the Proxy Portfolio includes some of the ETF’s holdings, it is not the ETF’s actual portfolio. The difference between the Non transparent ETF and other ETFs may also have advantages. By keeping certain information about the Non transparent ETF secret, the Non transparent ETF may face less risk that other traders can predict or copy its investment strategy. This may improve the ETF’s performance. If other traders are able to copy or predict the ETF’s investment strategy, however, this may hurt the ETF’s performance.