Everything You Wanted to Ask About Cboe-Listed Semi-Transparent ETFs

The novel structure combines the liquidity and tax benefits of an ETF structure without revealing a fund’s underlying holdings.

On April 2, 2020, American Century Investments listed two Semi-Transparent ETFs on Cboe. The innovative Cboe-listed ETFs are the first of their kind, revolutionizing investing and paving the way for a new category of ETFs.

What’s the difference between an ETF and a mutual fund?

It’s funny you should ask! Usually the best way to understand an ETF (or exchange-traded fund) is to first understand a mutual fund. Mutual funds provide exposure to stocks, bonds, commodities and other assets, giving investors access to seemingly unending unique investing strategies that are unattainable in less diverse portfolios. Similar to mutual funds, ETFs are a pooled investment vehicle that offer diversified exposure in stocks, bonds, commodities, currencies, options, futures or a blend of assets. However, ETFs offer less expensive and tax-efficient access to investment markets around the globe. Additionally, ETFs are, as their name implies, exchange traded, which means investors can easily buy and sell them through their brokerage account throughout the trading day.

This helpful chart from our friends at iShares does a great job of explaining the differences and similarities between mutual funds, index mutual funds, ETFs and stocks.

Source: iShares

So, Semi-Transparent ETFs are what now?

Semi-Transparent ETFs bring investors the best parts of a mutual fund in the accessible vehicle of an ETF.

Previously, the structure replicated in Semi-Transparent ETFs was only available in mutual funds, which do not provide the same liquidity, tax advantages or opportunities for entry.

Though similar to a standard ETF in terms of affordability, tax advantages and liquidity, Semi-Transparent ETFs are only required to disclose holdings quarterly, like mutual funds. This disclosure method enables asset managers to take advantage of the liquidity and tax-advantage benefits of the ETF structure, while keeping their proprietary strategy hidden to protect shareholders.

Understanding the widespread hesitation to show how the sausage is made, Precidian Investments opened the door for a partnership to find the best of both worlds. Cboe’s innovation expertise and white-glove ETP listing service helped pave the way to today’s launch of the first Semi-Transparent ETFs using Precidian’s ActiveShares® model.

The innovative structure allows American Century to deliver its time-tested actively-managed investment strategies in an ETF vehicle, without the daily disclosure requirement that comes with fully transparent ETFs.

As explained here, the brains behind the ground-breaking structure recognized that with the lack of daily disclosures comes increased difficulty in calculating intraday valuations. This can make it more difficult for Authorized Participants (AP) to create and redeem ETF shares. The solution? An AP Representative (APR) that facilitates creation and redemption on behalf of the AP. The APR is the only person outside of the portfolio manager aware of the holdings in their ETF portfolio. Ultimately, the creation and redemption process will remain similar to standard ETFs, with the exception that the portfolio holdings will not be disclosed each day. Additionally, according to ETF.com, “ActiveShares ETFs publish a "verified intraday indicative value" ("VIIV"), or a calculation of the hidden portfolio's net asset value that updates on one-second intervals throughout the trading day, arguably providing more pricing transparency than the traditional intraday net asset value (iNAV), which updates every 15 seconds.” 

How do American Century’s new products work?

Currently, American Century Investment’s Focused Dynamic Growth ETF and the Focused Large Cap Value ETF are the only products of their kind available and primarily listed on Cboe. The Focused Dynamic Growth ETF (Ticker: FDG) is designed to invest in early stage, rapid growth companies with large market opportunities, while the Focused Large Cap Value ETF (Ticker: FLV) is designed to invest in large-cap, high-quality companies temporarily selling at a discount.

American Century Investments is revolutionizing the ETF space by delivering these ground-breaking ETFs and we’re proud to serve as the listing exchange to bring their innovative solution to market.

Learn more about the #CboeListed products here or read the press release.