T. Rowe Wins Preliminary Approval for Semi-Transparent ETFs

T. Rowe Price Group TROW has been granted permission to offer semi-transparent exchange traded funds (ETFs) by the Securities and Exchange Commission. The company had first filed for relief in 2013.

T. Rowe Price is required to undertake certain regulatory permissions until it can launch any ETFs. Also, the company is yet to decide upon the investment strategies it will make available. Notably, it will start by offering certain U.S. equity strategies.

With this semi-transparent structure, T. Rowe Price will be able to offer active strategies without the need to disclose certain information that might be harmful to the interests of fund shareholders.

Per a Bloomberg article, the company is likely to take a proxy-basket approach, under which, it will disclose certain details about its clients’ holdings each day. This approach is expected to help market makers price their funds.

Fidelity Investments, Natixis Investment Managers and Blue Tractor Group are other companies that received preliminary regulatory approval to offer this new variety of ETFs.

These investment managers are eyeing active non-transparent model as a gateway to enter $4.2 trillion U.S. ETF market. However, it is still early to say whether retail investors will choose the model over traditional ETFs.

Our Take

T. Rowe Price’s financial stability has the potential to benefit from growth opportunities in domestic and global assets under management. Also, its debt-free position, higher return on earnings and improvement in investor sentiment, as a whole, make us confident of its prospects. However, regulatory restrictions and sluggish economic recovery might impair the company’s growth and escalate costs.

The stock has gained 30.9% so far this year compared with 8.3% growth recorded by the industry.

T. Rowe currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few better-ranked stocks from the finance space are Federated Investors, Inc. FII, Eaton Vance Corporation EV and Nomura Holdings Inc ADR NMR. All these stocks currently carry a Zacks Rank #2 (Buy).

Over the past 30 days, Federated has witnessed upward earnings estimate revision for the current year. Its shares have gained 8.8% in the past six months.

Eaton Vance’s earnings estimates for 2019 have remained stable over the past 30 days. Shares of the company have gained 24.2% in the past six months.

Nomura Holdings earnings estimates for the current year have been revised upward over the past 30 days. Shares of the company have gained 50.2% in the past six months.

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