Columbia Threadneedle unveils its first active semi-transparent ETF

Apr 4th, 2022 | By | Category: Equities

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Columbia Threadneedle Investments has launched its first actively managed, semi-transparent ETF, a thematic, growth-focused strategy targeting companies within semiconductor-related industries.

Paul Wick, Portfolio Manager at Columbia Threadneedle Investments

Paul Wick, Head of Columbia Threadneedle’s Seligman Technology team.

The Columbia Seligman Semiconductor and Technology ETF (SEMI US) has been listed on NYSE Arca with an expense ratio of 0.75%.

Semiconductors play a critical role across the electronics value chain, and their importance is only expected to grow in an increasingly digital global economy.

As the fourth most-traded product globally – after crude oil, refined oil, and automotive vehicles – semiconductors are core enablers of the data revolution and are at the forefront of innovative technologies including mobile handsets, PCs, robotic manufacturing, gaming consoles, electric vehicles, and the metaverse.

Several tailwinds continue to propel the semiconductor industry forward including the global 5G rollout, greater interconnectivity, and smarter consumer technology.

To tap into the semiconductor investment opportunity, Columbia Threadneedle is turning to its ‘Seligman Technology’ team, comprising 11 investment professionals averaging 24 years of industry experience. Based in Silicon Valley, the team manages more than $17.8 billion across technology-focused strategies.

The team is headed up by Portfolio Manager Paul Wick, one of the longest-tenured mutual fund managers in the technology space, having overseen the flagship Columbia Seligman Technology and Information Fund since 1990.

Harnessing deep fundamental research capabilities and specialist industry knowledge, the team invests the ETF’s assets into a high-conviction portfolio of 30 to 50 semiconductor companies, sourced from any country and market capitalization segment, which are expected to outperform the broader semiconductor market.

Eligible companies include those categorized by the Global Industry Classification Standard (GICS) as belonging to semiconductor or semiconductor equipment industries, as well as any firm with at least 50% of its revenues, sales, earnings, or assets arising from the design, development, manufacture, distribution, or sale of semiconductors, other integrated circuits, or semiconductor equipment.

The ETF may also invest in companies that internally develop their own semiconductors and related equipment rather than purchasing them from third parties.

The Seligman Technology team selects individual securities for portfolio inclusion based primarily on a growth-at-a-reasonable-price (GARP) framework which aims to identify undervalued and misunderstood companies in the technology industry.

The fund utilizes Fidelity’s proprietary semi-transparent ETF structure to shield daily portfolio holdings, thereby protecting the team’s intellectual property and preventing the risk of front-running.

Paul Wick, Head of Columbia Threadneedle’s Seligman Technology team, said: “No longer viewed as a cyclical sector, semiconductors have established themselves as the bedrock underlying the disruption and innovation brought about by new technologies. Even though the semiconductor sector has seen significant returns over the past decade, we believe it remains reasonably valued and quite profitable when compared to other technology sectors and the broader market. Plus, we believe the increase in end markets, alongside industry consolidation and high barriers to entry, bode well for potential future returns.”

Fidelity semi-transparent model

Semi-transparent ETFs aim to avoid disclosing daily portfolio holdings while maintaining the tax efficiency, liquidity, and lower costs typically associated with ETFs.

The Fidelity model does this by publishing a proxy portfolio consisting of some actual portfolio holdings, cash, and representative ETFs that hold securities similar to those held by the ETF.

According to Fidelity, by using diversified ETFs instead of individual stocks within the proxy portfolio, the model is better able to shield the manager’s intellectual property from front-runners.

Columbia publishes the percentage weight overlap between the holdings of the ETF and its proxy portfolio on a daily basis, helping investors understand how similar the tracking basket is to the fund’s actual holdings.

The proxy portfolio is optimized to closely track the ETF’s performance, thereby providing enough information to effectively price and trade fund shares throughout the day. Actual portfolio holdings are disclosed on a monthly basis with a 15-day delay.

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