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ETF Transparency: For Big Investors Only

 April 25, 2012 10:46 AM


(By ETF Daily News) Exchange-traded funds might not be as transparent as you think. The industry of exchange-traded fund issuers has already come under fire from FINRA for disclosures on leveraged ETFs, but new complaints say the transparency rules favor larger investors over smaller, retail investors saving for goals like retirement.

How Transparent are ETFs, Anyway?

Exchange-traded funds are required to publish their daily holdings and net asset values at the end of the trading day. Industry insiders have previously noted that such transparency is unprecedented – and it is. Mutual funds do not have the same disclosure rules, which is one of the many reasons why actively-managed funds often form as a traditional mutual fund rather than an exchange-traded fund.

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All this transparency does not seem to be benefiting individual investors. While exchange-traded fund companies do report their NAVs and individual holdings to the market, this required reporting is limited to authorized participants – major investment banks, hedge funds, and portfolio managers. Data given to authorized participants rarely flows into public information available to individual investors.

Public sites like Yahoo Finance, for example, list the most recent NAVs for any given ETF as of October 6, 2011. That data is already several months old – virtually worthless to any public onlooker.

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On fund issuers' websites, the data is more recent. iShares and State Street Global Advisors both show NAV values from the previous trading day. Both companies also provide a down-loadable database of the holdings.

However, indexing favorite Vanguard offers no such information to investors. The company releases data publicly only once per quarter.

Slowing the Niche ETF Boom

Limited NAV and holding information for smaller niche ETFs is the true problem with disclosure. Lesser-known issuers selling exotic ETFs often launch funds with small total asset sizes. The funds are so small that authorized participants have little incentive to use to the creation and redemption process to keep the price of the fund close to its immediate net asset value – the profit potential is simply too small for institutional investors.

Disclosure may ultimately slow the growth for niche ETFs in smaller and smaller spaces.


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