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Push to convert mutual funds into ETFs is quietly gathering pace

Index-tracking mutual funds saw their first ever outflow for a semi-annual period in the six months through June, losing out to ETFs by the widest margin ever, according to Bloomberg Intelligence.
Index-tracking mutual funds saw their first ever outflow for a semi-annual period in the six months through June, losing out to ETFs by the widest margin ever, according to Bloomberg Intelligence.
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The first mutual-to-ETF conversion hasn’t even happened yet, and already the company behind it is planning more.

Guinness Atkinson Funds wants to convert its Alternative Energy Fund into the SmartETFs Sustainable Energy ETF, according to a filing with the SEC this week.

It’s the third product the mutual-fund provider has applied to switch after it asked to create the SmartETFs Dividend Builder and SmartETFs Asia Pacific Dividend Builder from two similar mutual funds in May.

All three funds are tiny by industry standards, but any conversion would be the first of its kind and a milestone moment for asset management. Cash has been flowing toward ETFs and away from old-school mutual funds for years amid a general quest to cut costs and the disappointing performance of many active money managers.

Even index-tracking mutual funds have not been immune. They saw their first ever outflow for a semi-annual period in the six months through June, losing out to ETFs by the widest margin ever, according to Bloomberg Intelligence.

Investors may be put off by the costs associated with these funds, which had an average expense ratio of more than triple their peers.
July 15

While Guinness Atkinson is pursuing the first full mutual-to-ETF conversion, similar moves have begun elsewhere in the industry. Vanguard has been converting some holdings to its lower-cost ETFs, though these are structured as a share class within the mutual fund business.

The proposed sustainable ETF could invest in companies that support alternative or renewable sources of energy such as solar, wind, hydroelectric and geothermal, according to the filing. If approved, it would adopt the performance history of its predecessor, which was created in 2006 and has a 1.98% expense ratio.

Bloomberg News