A small mutual-fund provider has made history by becoming the first to formally change its products into ETFs.
Guinness Atkinson Funds announced on Monday that it had converted two of its mutual funds into the SmartETFs Dividend Builder (
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.
“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 move by Guinness Atkinson is likely to be just a start — quant giant DFA is already next in line to make a similar change to its product line.
March 3 -
The 20 funds in this ranking shed more than $793 billion over the period.
March 25 -
Such products attracted more than $32 billion in January and February, by far their best start to a year.
March 8
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
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 has been converting some mutual-fund holdings to lower-cost ETFs, although these are structured as a share class within the mutual-fund business.
Meanwhile, not every mutual fund can easily transform into an ETF. Many have broad multiple share classes and are distributed across a variety of platforms, according to Ben Johnson, director of global ETF research at Morningstar.
“For example, it would be difficult and generally inadvisable to convert a mutual fund that is predominantly owned in employer-sponsored retirement programs into an ETF,” he said. “Most of these programs don’t have the plumbing to accommodate ETFs and the benefits of the ETF wrapper don’t have the same appeal in a tax-deferred setting that’s designed for long-term savings.”
The new Guinness Atkinson ETFs got off to a slow start, with only $27,000 worth of shares traded in DIVS and $25,000 in ADIV during their first day.
More fund managers are entering the exchange-traded sector. Investors are following.
All the same, the conversions mark a new phase in the tug-of-war between the structures. Even as the firm was finalizing the switches, yet another manager — Adaptive Investments — was filing to change some of its mutual funds into ETFs.
Also in the queue is a small cannabis fund, which perfectly encapsulates why issuers are looking to make the jump.
Foothill Capital Management’s Cannabis Growth Fund (
In contrast, pot ETFs have been enjoying record popularity. The ETFMG Alternative Harvest ETF (
“Managers are getting more adept at identifying the benefit that the ETF could present,” said Ryan Sullivan, senior vice president of Brown Brothers Harriman’s global ETF services. “That should give them a tailwind to get their boards comfortable with it.”
