The Creation Basket holds 100% of the names in the ETF portfolio; no proxy securities are ever used. However, the portfolio manager's alpha strategy is shielded by the securities' % weightings in the Creation Basket always differing from the % weightings in the actual confidential ETF portfolio. Additionally, only the Shielded Alpha℠ wrapper equips portfolio advisers with the tools to fully manage the Creation Basket for cost, tax and trading obfuscation purposes.
After trading closes the ETF’s back-office or custodian uploads the confidential ETF portfolio to the cloud-hosted, secure Shielded Alpha℠ service. In seconds the algorithm generates and then downloads the Creation Basket ready for next day's trading.
The Creation Basket file is then sent by the custodian to the NSCC, identical to the workflow for a transparent ETF, and then published for all market participants to review and use. Just like with a transparent ETF, market makers and APs use the Shielded Alpha℠ Creation Basket for high-frequency pricing, hedging, arbitrage and creation and redemption activity directly with the ETF.