Goldman Sachs Asset Management is moving deeper into the nascent business of offering ETFs that partially conceal holdings, adding Fidelity to its roster of service partners.
GSAM agreed to license Fidelity’s methodology to create actively managed, semi-transparent ETFs, the asset manager said in a statement Monday. In January, GSAM filed with the SEC for a multi-asset ETF using the so-called ActiveShares model from Precidian Investments.
Both structures allow the funds to disclose their holdings once a quarter, like a mutual fund, versus than every day like typical ETFs. The so-called non-transparent ETFs are appealing for managers looking to shield their strategies from front-running or replication from rivals.
American Century launched the first of these ETFs in April, and GSAM, JPMorgan Chase and T. Rowe Price are among the asset managers who have also filed plans. Licensing Fidelity’s methodology for such ETFs in addition to Precidian’s gives the firm flexibility as more funds begin to launch and start trading, according to GSAM’s Mike Crinieri.
“This is all about having the flexibility and having multiple options for our investors,” said Crinieri, global head of ETF strategy at GSAM.
Fidelity’s model uses a so-called proxy basket, which means that the issuer will publish some information about their portfolios every day. That will help market makers price the funds without revealing the entire portfolio. The methodology was approved in December, along with similar proposals from T. Rowe Price, Natixis and Blue Tractor.
Meanwhile, Precidian’s structure publishes an indicative value every second to help traders make a price. The model also enlists an agency broker — known as an authorized participant representative — to confidentially buy and sell securities.
“Our model is very simplistic — it feels like an ETF, it works like an ETF, and fits with the current ecosystem,” said Greg Friedman, Fidelity’s head of ETF management and strategy, in a phone interview. “There’s no extra participants, there’s no extra plumbing or wiring that needs to be done to add to the market.”
Even some of the industry’s cheapest products “may be overpriced” in that they’re “mirroring a passive index,” an expert says.
Precidian CEO Daniel McCabe declined to comment.
GSAM entered the $4 trillion ETF market in 2015 with the launch of the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC), which has grown to $7.7 billion in assets. The firm said it had 19 ETFs with over $14 billion under management as of March 31, 2020.
