ETF Transparency and the Hidden Risks of Active Management: A Case Study of Fundstrat GRNY

The rise of actively managed ETFs has introduced a new layer of complexity to the investment landscape. While these funds promise dynamic strategies and thematic exposure, their success hinges on a critical factor: transparency. For investors, the opacity of holdings in actively managed ETFs like the Fundstrat Granny Shots US Large Cap ETF (GRNY) raises significant risks, from liquidity challenges to regulatory scrutiny. This article dissects the implications of delayed or incomplete disclosure practices in active ETFs, using GRNY as a focal point to explore broader industry trends and investor considerations.

GRNY's Structure and Disclosure Practices

The Fundstrat Granny Shots ETF (GRNY) operates as an actively managed fund, selecting U.S. large-cap stocks based on thematic research tied to macroeconomic trends, according to its WhaleWisdom profile. Its portfolio typically holds 20 to 50 equally weighted positions, with quarterly rebalancing to maintain alignment with its investment thesis, as shown on its MarketBeat profile. Notably, GRNY discloses its holdings quarterly, a practice that contrasts with the daily transparency mandated by the SEC's Rule 6c-11 for most ETFs, as discussed in an InvestmentNews article. While this approach aims to protect proprietary strategies, it introduces risks such as delayed visibility into top holdings (e.g., Tesla, AMD, NVIDIA) and potential inefficiencies in arbitrage mechanisms, a point emphasized in a Ryedale analysis.

The Regulatory Landscape and Industry Shift

The SEC's Rule 6c-11, enacted in 2019, requires most ETFs to publish daily portfolio holdings, a measure designed to enhance market efficiency and investor trust. However, active managers often resist full transparency, citing concerns over front-running and strategy replication, a stance reflected in Fundstrat's MarketBeat listing. Despite these objections, the industry has increasingly gravitated toward transparent structures. For instance, T. Rowe Price's transparent Capital Appreciation Equity ETF (TCAF) has attracted significantly more assets than its non-transparent counterpart, the Blue Chip Growth ETF (TCHP), highlighting investor preference for visibility, as shown in a WealthManagement analysis. This trend underscores a broader shift: transparent ETFs now dominate inflows in the active ETF space, even as non-transparent options struggle to differentiate themselves, a pattern noted by Ryedale.

Risks of Delayed Disclosure

Delayed or infrequent disclosure in active ETFs like GRNY can exacerbate liquidity risks and investor uncertainty. Without daily visibility into holdings, arbitrageurs face challenges in efficiently pricing shares, potentially widening bid-ask spreads, as discussed in the InvestmentNews article. This opacity also increases the risk of front-running, where traders exploit partial or delayed portfolio data to anticipate trades, a concern raised in the Ryedale analysis. For GRNY, which relies on thematic positioning in high-growth sectors, such risks could amplify market volatility and erode investor confidence during periods of rapid market shifts, as noted in its WhaleWisdom profile.

Moreover, non-transparent ETFs often underperform their transparent peers. A 2025 analysis revealed that non-transparent ETFs, on average, hold less than $1 billion in assets, compared to the explosive growth of transparent active ETFs, which have attracted over $136 billion in inflows, according to Ryedale. This disparity reflects investor skepticism toward funds that obscure their strategies, particularly in an era where liquidity and performance expectations are increasingly scrutinized, as discussed in the WealthManagement analysis.

Strategic Trade-offs for Active Managers

Active managers face a delicate balancing act: protecting proprietary strategies while meeting investor demands for transparency. GRNY's quarterly disclosure model attempts to strike this balance but may fall short in volatile markets. For example, during periods of rapid sector rotation, delayed disclosures could leave investors in the dark about the fund's exposure to emerging risks or opportunities, a potential pitfall highlighted by GRNY's public filings and profiles. Additionally, the fund's equal-weighting approach, while designed to mitigate concentration risk, may inadvertently expose it to liquidity challenges if underlying holdings are less liquid, a dynamic explored in the WealthManagement analysis.

Conclusion

The case of GRNY illustrates the broader tensions shaping the active ETF market. While thematic strategies and active management offer potential rewards, the risks associated with delayed disclosure-front-running, liquidity inefficiencies, and investor distrust-cannot be ignored. As the industry continues to evolve, investors must weigh these risks against the benefits of active management. For funds like GRNY, the path forward may lie in adopting hybrid models that balance transparency with strategic protection, ensuring both regulatory compliance and investor confidence.