New Variety of EFTS to Change the Markets in 2020 (Shielded – Non-Shielded)

Back on the 14th November, 2019, the SEC (the Securities and Exchange Commission) has approved the use of four new EFT structures for the reason of being able to attract more active managers to the existing EFT markets of the world. These changes and introductions were then initially implemented on 10th December, meaning the time for public hearings against these changes is now over, making the changes official.

Added Transparency? What Changed?

The main change that has happened here with EFTs is to compliment the need for transparency between managers and what EFTs they hold in their portfolios. It has already been an EFT tradition for a long time that the majority of issuers must publish on a daily basis what they contain and the amount of said EFTs.

While a tradition for issuers to follow, this has now become the rules, meaning investors can always know what an issuer holds. While great in some respects, others are not so sold on the changes.

Many active managers have voiced their concerns, claiming that this is a ‘double-edged sword.’ There are concerns that although you know what you own, everybody else within the market will also know what other active managers own, which could increase the risk of front-running and free-riding.

In turn, this has led to the process of some of the most well-known and most renowned active managers avoiding the launch of some EFTs. Typically, these have been the ones that are said to have launched funds in an index-based strategy.

“On the same side of the coin, the active EFTs that have had to give their full disclosures at the end of each and every day, assets surrounding these products have been incredibly slow to build up. The statistics show that around 144 equity EFTs equal around $14 billion in the total number of assets invested. This may seem like a lot, but in reality, it only represents around 0.3% of all the EFTs listed in the US,” shares Tina Paige, a tech writer for Economics Assignment and Oxessays.

Of course, active management has always been more popular when it comes to accounts like fixed-income funds, but even in this niche, the 112 active bond EFTs make up around 1.8% of the total number of assets. As you can see, it’s very slow to build, and currently only represents a small fraction of the total.

Non-Disclosed EFTs

“While there’s a lot of fuss being made over the implementation of having to disclose totals, this isn’t all there is to talk about. Non-disclosable EFTs have also been approved by SEC, and the continents of Europe and Asia are expected to follow suit. Frank Koudelka, a global EFT product specialist, spoke in London on the 21st November 2019 to share the news,” explains Sarah Turner, an EFT expert at Assignment Writers and Academized.

In his talk, he stated that he expects this new kind of ActiveShare to grow as significantly as the transparent EFTs we mentioned before, especially since they have already gathered around $90 billion in assets under current management structures.

He went on to explain that although a lot of active managers have been hesitant about implementing EFTs into their strategies due to the fact, they don’t want to give away what they have, it’s better for everyone to have this semi-transparent option available.

So far, the ActiveShare structure being implemented has already seen the likes of assets managers, including BlackRock, Nationwide, Columbia, American Century, Capital Group, Legg Mason, and several others taking up the helm.

What Does the Future Hold?

The introduction of these various types of EFT means a more diverse market for transactions to take place and should help to provide more opportunities for active managers to diversify their portfolios and make non-binary choices.

Of course, while approved in the US, we’ll need to wait and see whether these changes are reflected across the world, especially in markets throughout Asia and Europe, although these changes are set to take place.

Over the course of the next 18 to 24 months, there’s going to be a lot going on in this industry, and it’s going to be important for anyone interested or involved to keep up to date with the latest trends and regulations. Of course, there are going to be risks, but as the markets grow, this can only mean more opportunities for all.