Emile Hallez
6 min read
In This Article:
There are some late bloomers in the world of ETFs.
While some of the big names in the business have been in it for a couple decades, there are plenty of traditional mutual fund shops that have only recently made the leap. Others may still be considering if, and when, to add ETFs. Within a few months, though, the rules of the road are probably changing. The Securities and Exchange Commission is widely expected to start approving a dual-share class structure, which will allow companies to add ETF share classes to existing mutual funds and vice versa.
But that hasn’t stopped firms from adding stand-alone ETFs or converting mutual funds to them. In recent months, companies including Lazard, First Eagle, Parnassus, Praxis, Thornburg, and Tweedy, Browne, have added their first ETFs. They have good reason to get into the space: ETFs can offer tax efficiency, they trade intraday and they provide transparency that some investors want. One other important detail … they’re cheap.
New in Town: “The tax advantages afforded by ETFs are simply too compelling to ignore,” said Bob Wykoff, managing director at Tweedy, Browne, which in December launched the Insider + Value ETF, its first product in the wrapper. “We’ve had an interest in ETFs for a very, very long time. But finding how we would come at it took us some time. There was a long learning curve.”
There are more than a few factors motivating asset managers to add ETFs. Actually, there are billions and trillions of them:
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Capturing a share of those inflows requires investment, however. Fund companies either have to hire staff to help build out a platform or go with a third-party provider. First Eagle Investments, a $152 billion asset manager, opted to use RBB’s series trust rather than building its own for the two active equity ETFs it launched last year. “We definitely felt there was some urgency in getting to market,” said Frank Riccio, head of US wealth solutions at First Eagle. “We’re borrowing their expertise … They were critical to us getting to market within six months.” The arrangement doesn’t preclude First Eagle from adding its own ETF trust later, something the firm is likely to do if it makes sense financially, he said.
For mutual fund companies expanding into ETFs, several options are available, Daniel Sotiroff, Morningstar senior analyst for passive strategies research, told ETF Upside:
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They can convert existing mutual funds to ETFs.
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Asset managers can simply add new ETFs, which in some cases are strategy clones of existing mutual funds.
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The third option, pending SEC approval, is adding an ETF share class.
