Will ARK Invest Active ETFs Convert To The New Non-Transparent Format?

Non-transparent ETFs (ANT’s) were launched earlier this year. They make room for a new breed of active ETF that does not have to disclose it's positions daily. Instead, they're allowed to divulge their holdings quarterly and with a lag.

With one catch: ANT’s can only trade securities that trade during US market hours. These can be American Depositary Receipts and Global Depositary Receipts of foreign companies, U.S Treasuries, and U.S.-listed ETFs but not foreign stock that only trades in, say, Hong Kong.

In theory this would limit the Ark invest opportunity window. But right now in the ARK family of funds there are only 6 companies, comprising just 0.91%,of assets under management, that fall outside of the US trading hour window: Meituan, Adyen, SBI Holdings, Z Holdings, Yeahka, Dassault.

Many positions are indeed foreign but the vast majority trade as ADRs on the NYSE or Nasdaq. Some of the biggest include Alibaba, Baidu, Tencent, JD.com, and Huya. These positions would be within scope of ANT rules and could continue on unchanged.

The one fund which would have a problem with this is the PRNT ETF where 14 of the 51 positions are only traded on foreign exchanges. Something about Europe and 3D printing seems to have clicked. Which is interesting but for another post.

In addition to limiting the investment window, it’s not clear if:

• It’s possible to convert from a transparent structure to a non-transparent structure.
• There would be a material benefit to doing so.
• Ark would want to give up their open ecosystem culture.

It seems less likely than more likely that Ark would go non-transparent. Given their openness, success, and long-run holding period, why shake up a good thing? You could even make an argument that a long term holder of a company like Tesla would benefit from everyone seeing that they’re not selling even on the days when it’s up 15%. It bolsters confidence in the underlying company.