Over the past 20 years, ETFs have become an increasingly popular alternative to traditional mutual funds. They’re easy to access, trade like stocks and available to all investors no matter how much they want to invest at any one time. And, while passively managed ETFs have become increasingly popular as an investment tool, there’s more to the ETF asset class than just passive funds.

ETFs simply aren’t one-size-fits-all.

For instance, actively managed ETFs tend to be less popular than their passively managed counterparts, with more than 97% of the assets in U.S.-listed funds invested of the passive variety.  But, 2020 is expected to be the year that every investor takes notice of active funds. That’s because the first active non-transparent ETFs (ANTs), the newest fund structure, launched earlier this year… and all eyes are on what’s next.

This latest addition to the ETF category, the ANT, is catching the eyes of investors and making waves. Here’s what investors need to know about active ETFs and the brand-new ANT. 

What Are Actively Managed ETFs?     

Traditionally, there are two types of ETFs: passively managed ETFs, and actively managed ETFs. While the former attempts to track trends in a benchmark such as the SP 500, the latter strives to outperform that benchmark. 

In other words, whereas passive ETFs strive to “keep pace with market returns,” active funds are actively managed in such a way as to try and outperform the market or index that they track.

According to Fidelity Investments, “the underlying concept behind an actively managed ETF is that a portfolio manager adjusts the investments within the fund as desired while not being subject to the set rules of tracking an index.”

Traditional actively managed ETFs (not of the ANT variety) offer advantages that passively managed ETFs do not. These include potentially higher returns. They also tend to be less expensive than comparable mutual funds, they are more tax efficient, and they allow an investor more flexibility to trade throughout the day. 

Actively managed ETFs aren’t a perfect solution, however. For example, they deviate from the NAV and they have more costs associated with them than index-trading ETFs. Most notably, they also carry a daily disclosure requirement. This full disclosure requirement runs the risk of limiting an advisor from adjusting a portfolio or following a specific strategy out of concern that doing so might be noticed by other leading traders in the markets. In other words, traditional actively managed ETFs force ETF mangers to show their cards to the world rather than play them close to their vest. This can put portfolio managers and investors at a disadvantage.

Enter the ANTs 

ANT structures were given the first go ahead by the U.S. Securities and Exchange Commission in late 2019. In April 2020, the first actively managed hidden-asset ETFs were launched by American Century. After American Century launched the Focused Dynamic Growth and the Focused Large Cap Value ETF, they were quickly followed by more. 

As of August 2020, Fidelity, Clearbridge and T. Rowe Price all have horses in the race. Fidelity’s ANTs include: the Fidelity Blue Chip Growth ETF (FBCG), Fidelity Blue Chip Value ETF (FBCV) and the Fidelity New Millennium ETF (FMIL). Clearbridge’s ANTs include ClearBridge Focus Value ETF CFCV. In total, at least 10 ANTs amount to $330 million in combined assets. And there is no doubt that there will be more to come. 

While they are permitted to trade like traditional ETFs, ANTs do not require the daily disclosure of the contents of their portfolios to the public. They only require disclosure of holdings once per quarter. This means that managers can make changes without “tipping their hand” to the market. This isn’t a small difference.

Also, like other ETFs, ANTs pass off many of their costs from buyers and sellers, externalizing them. ANTs, again similar to other ETFs, have lower fees than mutual funds. 

Be warned though, ANTs cannot stop sales at a certain capacity to protect investors. Also, the verdict isn’t in on whether they will be more tax efficient than traditional ETFs or not. Moreover, transactional costs could run higher than with traditional ETFs, especially if an investor is making consistent contributions.

Perhaps the most distinctive feature is that ANTs are not very transparent. This can also be a bad thing. As previously stated, while most ETFs are required to disclose their portfolio on a daily basis, ANTs are only required to do so quarterly. This can leave the competition and individual investors in the dark. The question that remains is this, though: If you are planning to buy and keep an ETF over a period of time, do you really need a daily update on its holdings?

Investing in actively managed ETFs

ANTs are new and exciting especially in the world of ETFs. But, because they have some advantages over actively managed mutual funds, analysts are wondering how they might impact that market. 

For investors interested in actively managed ETFs in general, there are a number of different options to choose from, such as those shown below.