First mutual fund converts into ETF
A small mutual-fund provider has made history by becoming the first to change formally its products into exchange-traded funds.
Guinness Atkinson Funds announced on Monday that it had converted two of its mutual funds into the Smartetfs Dividend Builder (ticker DIVS) and Smartetfs Asia Pacific Dividend Builder (ADIV). The conversion was a nontaxable event for shareholders, and the funds will retain their performance history.
It’s a big moment for the $5.9 trillion U.S. ETF industry, which has long been considered the scrappy upstart to the more established, mature market for mutual funds.
Generally lower costs, easier access and tax advantages mean ETFS have been luring assets away from mutual funds for years, and this week’s conversions could be the start of a wave. Quant giant Dimensional Fund Advisors is already next in line, with a far more substantial switch set to take place next month.
“It could shake-up the landscape a little,” said Sal Bruno, chief investment officer of Indexiq. “The first one is going to be the most difficult, but once that road gets paved a little bit, I think we’ll see some more come in.”
The U.S. ETF industry took in almost $500 billion last year, while mutual funds lost about $362 billion, according to data compiled by Bloomberg. That’s helped push total ETF assets up from about $4 trillion at this time in 2020.
Bloomberg Intelligence estimates active managers could bring $100 billion to the ETF industry through the mutual-fund conversions as well as other internal asset moves.
Los Angeles-based Guinness Atkinson is already planning to convert its Alternative Energy Fund into the Smartetfs Sustainable Energy ETF. But the small size of its funds -- DIVS has $23 million and ADIV has $4.4 million -- mean all Wall Street eyes are now set to turn to Dimensional.
The Austin, Texas-based manager of $601 billion will start converting around $26 billion worth of mutual funds into ETFS beginning in early June. That will catapult the firm to become one of the 12 largest ETF issuers in the U.S., according to Bloomberg Intelligence. It only entered the market last year.
While the Guinness Atkinson conversion is formally the first, the shift of assets between the fund classes has long been an industry feature. Most notably, Vanguard Group has been converting some mutual-fund holdings to lowercost ETFS, although these are structured as a share class within the mutualfund business.