If fundsters aren't careful, they could be setting themselves up for some branding confusion ... and not the good kind.

Last week the SEC granted conditional approval to a new kind of ETF, Precidian Investments' ActiveShares. As the name suggests, the new structure (which has been awaiting approval for nearly five years) is meant to be more friendly to active management, as it removes the need for such an active ETF to reveal its portfolio holdings daily. And thus was the "non-transparent" moniker born.

Publications of various stripes — including Bloomberg, ETF Trends, the National Law Review, and the Wall Street Journal — ran with variations on that label, non-transparent ETFs. So did BBH and even Precidian itself. Too bad.

From where MFWire sits, "non-transparent ETFs" is a label that is, at best, innocently misleading (because it belies the fact that, like regular mutual funds, Precidian's ActiveShares will still have to regularly reveal their portfolio holdings), and at worst, downright scary. How many investors will get visions of the next Bernie Madoff making their money disappear thanks to a "non-transparent" product?

Transparency is generally en vogue right now, and not just in financial services. Labeling an industry innovation as "non-transparent" might sound like the industry's putting a big "warning, these funds might screw you over!" label on the new products. Investors could be forgiven for not realizing that all the standard mutual fund protections will still apply here.

The ActiveShares name (and the name of a quasi-competitor, NextShares) does avoid running afoul of this problem. But it seems high time the industry comes up with a more investor-friendly description for funds that use structures like this. 

Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE