Legg Mason’s ClearBridge launches semi-transparent ActiveShares ETF

May 29th, 2020 | By | Category: Equities

Legg Mason has introduced an actively managed ETF harnessing the innovative ActiveShares product structure.

Legg Mason launches semi-transparent ActiveShares ETF

Legg Mason is the second asset manager to launch an ActiveShares ETF.

The ClearBridge Focus Value ETF (CFCV US) has listed on Cboe BZX Exchange and is sub-advised by Legg Mason affiliate, ClearBridge Investments.

It comes with an expense ratio of 0.50%.

The fund is the third ActiveShares product to hit the market.

Created by financial product developers Precidian Investments, which is part-owned by Legg Mason, ActiveShares ETFs are able to avoid disclosing daily portfolio holdings while maintaining the tax efficiency, liquidity, and lower costs typically associated with ETFs.

The ActiveShares approach masks an ETF’s holdings by inserting a blind trust, known as a ‘confidential account’, between the fund and its authorized participants. These trusted agents are privy to portfolio holdings and perform creations and redemptions on behalf of authorized participants.

ActiveShares ETFs provide a live verified intraday indicative value (VIIV) every second; however, official portfolio holdings need only to be disclosed on a quarterly basis.

The first two actively managed ETFs utilizing Precidian’s proprietary ActiveShares structure were launched by American Century Investments in early April.

The ClearBridge ETF seeks long-term capital appreciation by investing primarily in US large-cap equities characterized by strong franchises, sustainable competitive advantages, and attractive valuations.

While most of the ETF’s investments will be in US companies, it may also invest in American Depository Receipts (ADRs) and US-listed shares of foreign companies. Up to 20% of the fund’s assets may also be dedicated to stocks with lower market capitalizations, typically below $5 billion.

Portfolio construction combines bottom-up fundamental analysis with a macro outlook to develop a focused value portfolio of approximately 30 to 40 companies.

The strategy applies ongoing risk management including a sell discipline, and risk controls to help mitigate concentration risk and enhance diversification.

Terrence Murphy, CEO of ClearBridge Investments, commented, “This ground-breaking ETF is part of our commitment to delivering active investment excellence in the vehicles our clients and investors demand. This is another exciting step in the development of ETFs, giving investors greater choice and more opportunities to invest in otherwise inaccessible active strategies in a highly efficient and confidential ETF wrapper.”

Joseph A. Sullivan, Chairman and CEO of Legg Mason, added, “The launch of this innovative ETF structure with Precidian, ClearBridge, and other industry partners is the perfect example of how we have sought to provide investors with better choice of vehicles and strategies. Precidian’s ActiveShares structure is not only an evolution in ETFs but also a potential game-changer for active management. It has the potential over time to transform how retail investors access the best active strategies.”

There has been significant interest by asset managers in licensing the ActiveShares product structure. Currently, the technology has been licensed by 14 asset managers, covering 26% of the actively managed US equity market. Other financial heavyweights looking to launch ActiveShares products include BlackRock, Capital Group, JP Morgan, Nationwide, Gabelli, Columbia, and Nuveen.

Beyond ActiveShares, the SEC has given the green light to several other semi-transparent ETF structures including designs from Fidelity, T. Rowe Price, Natixis, and Blue Tractor Group.

Invesco, the fourth-largest ETF issuer in the US by AUM has also submitted an application with the SEC for its own proprietary non-transparent model.

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