Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
"Active managers have largely shied away from offering ETF versions of their products because ETFs are required to disclose all their holdings every day, revealing their investing strategies."
By law and by custom, mutual funds are only required to disclose their portfolios on a quarterly basis—and then only with a 30-day lag. ...
ETFs are far more transparent. By custom, most ETFs disclose their full portfolios on public, free websites every single day of the year. ...
Some ETFs, such as Vanguard’s products, fall short of this ideal metric. There is no law requiring ETFs to disclose their full portfolios every day. But even for those that disclose less frequently, there is a catch.
ETF issuers each day publish the lists of what securities an authorized participant (AP) must deliver to the ETF to create new shares (“creation baskets”), as well as what shares they’ll get if they redeem shares from the ETF (“redemption baskets”).
This "technical detail" is particularly relevant because Vanguard ETFs (the subject of this thread) are among the worst in disclosing their portfolios.
The reality is worse. The InvestingNews article (top quote) says that one can easily infer a fund's investing strategy from what it holds. Since ETFs must explicitly disclose their investing strategy (by publishing creation/redemption baskets), one doesn't need to know what's in the portfolio to front run the trades.
I believe actively managed ETFs actually HAVE to publish daily holdings unlike index ETFs for price discovery reasons. Also the baskets published to APs for index funds don't need to be entire holdings but a small subset.
Vanguard will either wait for the rules change that many are pushing for active ETFs to not have to publish daily holdings or do it only for those funds where the manager feels daily disclosure will not hurt the fund.
Personally, I suspect others knowing the strategy or front running isn't as much of a concern for most managers as having their bad ideas made public and not being able to do end of quarter window dressing to look good.
I stand corrected on portfolio disclosure of actively managed ETFs (though Vanguard has already finessed this, as I'll describe below). Now that you mention it, I do recall having read this, but never in an authoritative place. Given all the people who incorrectly claim that all ETFs must disclose daily, I wasn't going to take this narrower claim about daily disclosure for about actively managed ETFs at face value without citation.
That the published baskets are not the entire portfolio was the point I was making. This is the only daily required disclosure (for passively managed ETFs). Which means, as you wrote, that they don't disclose what the fund holds. What they disclose is precisely what the fund is trading. And it is that disclosure (not what's in the portfolio) that is supposedly of interest/concern.
You're right - daily disclosure does make window dressing a lot harder.
When Vanguard first made an ETF share class (VEA) for its tax-managed international fund (VDVIX), it put out the incongruous statements that the ETF was passively manged, and the open end share class was actively managed. Blatent nonsense, as these are just two share classes of the same portfolio (like A and C shares are two share classes of the same portfolio). I even emailed Vanguard; they stuck to their story.
Vanguard seems to have since backed off claiming that VDIVX is actively managed (for tax efficiency), but you can still find vestiges of this claim on its website, e.g.: https://personal.vanguard.com/us/funds/byobjective/detail?category=InternatlStock "Vanguard Tax-Managed International Fund ... is actively managed to minimize the impact of taxes ..."
What it comes down to is that a lot of this stuff is for marketing purposes - to make people feel that they're brilliant (or at least on sound footing) for picking the "superior" investment (whichever one they pick).
People can have different opinions on which of this stuff really matters, and by how much. As the saying goes, you're entitled to your own opinions, but not your own facts. That's why I'll jump on statements like "(all) ETFs disclose on a daily basis." But when I'm wrong (as here, about truly actively manged ETF disclosure), I'm happy to acknowledge my error. So thanks for the correction.
Comments
Wrong, and the reality is worse.
From ETF.comThis "technical detail" is particularly relevant because Vanguard ETFs (the subject of this thread) are among the worst in disclosing their portfolios.
The reality is worse. The InvestingNews article (top quote) says that one can easily infer a fund's investing strategy from what it holds. Since ETFs must explicitly disclose their investing strategy (by publishing creation/redemption baskets), one doesn't need to know what's in the portfolio to front run the trades.
Vanguard will either wait for the rules change that many are pushing for active ETFs to not have to publish daily holdings or do it only for those funds where the manager feels daily disclosure will not hurt the fund.
Personally, I suspect others knowing the strategy or front running isn't as much of a concern for most managers as having their bad ideas made public and not being able to do end of quarter window dressing to look good.
Okay, here's a cite (from the SEC): http://www.sec.gov/investor/alerts/etfs.pdf
"Actively managed ETFs are required to publish their holdings daily."
That the published baskets are not the entire portfolio was the point I was making. This is the only daily required disclosure (for passively managed ETFs). Which means, as you wrote, that they don't disclose what the fund holds. What they disclose is precisely what the fund is trading. And it is that disclosure (not what's in the portfolio) that is supposedly of interest/concern.
You're right - daily disclosure does make window dressing a lot harder.
When Vanguard first made an ETF share class (VEA) for its tax-managed international fund (VDVIX), it put out the incongruous statements that the ETF was passively manged, and the open end share class was actively managed. Blatent nonsense, as these are just two share classes of the same portfolio (like A and C shares are two share classes of the same portfolio). I even emailed Vanguard; they stuck to their story.
Vanguard seems to have since backed off claiming that VDIVX is actively managed (for tax efficiency), but you can still find vestiges of this claim on its website, e.g.:
https://personal.vanguard.com/us/funds/byobjective/detail?category=InternatlStock
"Vanguard Tax-Managed International Fund ... is actively managed to minimize the impact of taxes ..."
What it comes down to is that a lot of this stuff is for marketing purposes - to make people feel that they're brilliant (or at least on sound footing) for picking the "superior" investment (whichever one they pick
People can have different opinions on which of this stuff really matters, and by how much. As the saying goes, you're entitled to your own opinions, but not your own facts. That's why I'll jump on statements like "(all) ETFs disclose on a daily basis." But when I'm wrong (as here, about truly actively manged ETF disclosure), I'm happy to acknowledge my error. So thanks for the correction.