Mutual Fund to ETF Conversion
by Cara Scatizzi and Charles Rotblut, CFA
Huntington Asset Advisors could become the first company to convert some of its mutual funds into exchange-traded funds ETFs. In late June, the company filed an exemptive relief order with the SEC to convert its Rotating Markets mutual fund into an actively managed exchange-traded fund.
Recently, professionals in the ETF world have been discussing the merits of converting a mutual fund into an actively managed ETF. A number of mutual fund companies besides Huntington Asset Advisors are believed to be discussing this option.
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Why Convert?
From the perspective of the mutual fund managers, converting a mutual fund to an exchange-traded fund has some appeal. If the SEC grants its approval, the fund’s performance history would stay with it after its transformation from a mutual fund to an ETF is complete. In addition, the new ETF will have the same established management reputation and investment and trading style as the original mutual fund.
What are the benefits to the investor of a mutual fund that is attempting to convert its shares? The main pluses are greater transparency and potentially lower fees. At this time, actively managed ETFs are required to publish their holdings on a daily basis. Mutual fund companies are required to do this only quarterly.
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Charles Rotblut, CFA is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at twitter.com/charlesrotblut.
