The Great Migration: What’s Behind ETF Asset Growth
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Why asset managers convert mutual funds to ETFs
How conversions and ETF share classes work
Investor pros and cons of ETF conversions, including performance realities, liquidity and transparency
A growing number of asset managers are converting traditional mutual funds into exchange-traded funds (ETFs) or preparing to offer ETFs as a mutual fund share class. This is being done in response to investors who increasingly favor lower costs, tax efficiency and intraday trading flexibility.
Rather than launching new strategies from scratch, conversions allow asset managers to leverage proven track records, retain assets and modernize their offerings without abandoning well-known fund lineups. A new ETF share class within a mutual fund with a well-known track record can gain investor trust.
An ETF conversion occurs when an existing mutual fund is reorganized into an ETF with the same underlying portfolio. The conversion typically happens on a tax-free basis for shareholders, meaning investors receive ETF shares in place of their mutual fund shares without realizing capital gains at the time of the conversion. After the conversion, the fund operates under the ETF structure, with different trading mechanics, expenses and features.
