Just a few weeks ago Guinness Atkinson Asset Management caught the attention of the investor community when it converted two of its mutual funds into exchange-traded funds.
The methodology behind the change involves some moderately complex legal activity. But there’s nothing about the process that can’t be duplicated. And the change was a “non-taxable event” for shareholders, according to ETF Strategy.
The move marked the first time that mutual funds (the long-standing darlings of the investing world) were converted into exchange-traded funds (the hottest development of recent years.)
It won’t be the last.
Dimensional Fund Advisors plans to convert six of its funds to ETFs, with the first four slated to transform in June, according to the New York Times. Meanwhile Foothill Capital Management says it will do the same with its Cannabis Growth Fund, Bloomberg News reported.
ETFs are far less expensive to run than mutual funds. ETFs are also much easier for investors to buy and sell. And there are tax advantages for investors inherent in the way ETFs handle capital-gains taxes.
Those factors help explain the extraordinary shift in dollars from mutual funds to ETFs in the past decade. Now it appears likely to drive smaller mutual funds to convert to ETFs rather than compete against them.
However the giants of the mutual fund industry are unlikely to do the same, according to the Times, which noted that “several of the largest fund providers — BlackRock, Vanguard, T. Rowe Price and Fidelity — said they had no intention to convert their mutual funds.”
