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Portfolio > ETFs > Broad Market

Here's When DFA Will Convert 4 Mutual Funds to ETFs: Portfolio Products

By Bernice Napach

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Dimensional Fund Advisors has disclosed the timeline and other details for converting four actively managed mutual funds to four active ETFs, with which it announced in November. The conversions involve an estimated $26 billion in total assets.

The firm previously announced plans to convert six mutual funds into ETFs. No word yet on when the two other mutual funds —Tax-Managed International Value Portfolio and TA World ex US Core Equity Portfolio — will be converted.

All of the four conversions that were disclosed will take place on or about June 11, structured as tax-free reorganizations and result in lower fees for investors. Investment strategies and objectives as well as portfolio managers will remain unchanged.

The four conversions are as follows:

  • Tax-Managed U.S. Equity Portfolio, with a 0.18% management fee, into the Dimensional U.S. Equity ETF, with a 0.08% management fee
  • Tax-Managed U.S. Small Cap Portfolio, with a 0.40% management fee, into the Dimensional U.S. Small Cap ETF, with a 0.30% management fee
  • Tax-Managed U.S. Targeted Value Portfolio, also with a 0.40% management fee, into the Dimensional U.S. Targeted Value ETF, also 0.30% management fee
  • T.A. U.S. Core Equity 2 Portfolio (0.20% management fee) into the the Dimensional U.S> Core Equity 2

Each ETF will also charge another 0.03% or 0.04% for additional expenses.

At conversion, each share of the mutual fund will be exchanged for a share of equal value of the new ETF.

Guinness Atkinson Sets Date for First Mutual Fund-to-ETF Conversions

Months before DFA converts some of its mutual funds to ETFs, Guinness Atkinson Asset Management will have already done so, albeit with two funds whose total assets are only a fraction of the DFA funds, around $25 million. Its conversions of two mutual funds to ETFs will be the first in the industry and are set to take place on March 26.

The Guinness Atkinson Dividend Builder Fund will become the SmartETFs Dividend Builder (DIVS) and the Guinness Atkinson Asia Pacific Dividend Builder Fund will become the SmartETFs Asia Pacific Dividend Builder (ADIV).

“This move represents the culmination of a dialogue we’ve had with our shareholder base, who like many are increasingly attracted to the benefits of ETFs, including their lower costs and greater flexibility,” said Jim Atkinson, CEO of Guinness Atkinson Asset Management, in a statement.

After the conversion, the expense ratio of the Dividend Builder fund will decline from 0.68% to 0.65%; and the fees for the Asia Pacific Dividend Builder fund will drop from 1.12% to 0.78% — both effective until at least June 30, 2024.

The strategies and portfolio management of the funds will remain unchanged. DIVS invests in about 35 dividend-paying companies globally that provide inflation-adjusted cash flow return on investment of at least 10% in each of the last 10 years. ADIV does the same but for only mature companies in the Asia Pacific region.

The new ETFs will join the firm’s roster of three other actively managed ETFs: SmartETFs Smart Transportation & Technology Fund (MOTO), SmartETFs Sustainable Energy II (SULR) and SmartETFs Advertising & Marketing Technology (MRAD).

J.P. Morgan Asset Management Launches Short-Duration Bond ETF

J.P. Morgan Asset Management has introduced the JPMorgan Short Duration Core Plus ETF (JSCP), is an actively managed fixed income ETF designed to deliver total return via investments in investment-grade and non-investment grade short-term fixed income securities.

The ETF targets a duration of three years or less and under normal conditions will invest at least 70% of holdings in assets that at the time of purchase are rated investment grade. These include investment-grade corporate debt as well as U.S. Treasurys, mortgage- and asset-backed securities, high-yield and emerging markets debt.

Under normal conditions, no more than 30% of the fund’s net assets will be invested in below investment grade or unrated debt, and up to 25% of assets can be invested in international debt. The ETF’s expense ratio is 0.33%.

“For investors looking for ways to integrate flexibility into their portfolios, we believe JSCP offers choice and transparency, especially during a period of rising rates,” said Byron Lake, head of Americas Client ETF, J.P. Morgan Asset Management. The firm’s new ETF expands its latest suite of actively managed ETFs to 10 products.

Alger Launches Its First ETF

Fred Alger Management has launched its first ETF, the Alger Mid Cap 40 ETF (FRTY), which is a semi-transparent actively managed ETF that uses the ActiveShares methodology and trades on the NYSE Arca.

The ETF invests in 40 stocks, primarily mid-cap companies, whose market cap can range from roughly $1 billion to $60 billion. It has a 0.60% expense ratio through at least April 23, 2023, including a fee waiver, and may invest a significant portion of assets in technology and health care companies, though not more than 25% of total assets in any industry within those sectors. The firm’s Mid Cap Focus mutual fund, which invests in 50 stocks, gained over 80% last year.

Alger has also filed applications with the Securities and Exchange Commission for Alger 35 and Alger 25 ETFs, which would also be actively managed. An SEC filing dated March 1 says the Alger 35 has not yet been approved for listing on NYSE Arca, but the firm anticipates the Alger 35 will start trading on or about May 1. A company spokesperson said no definitive date has been set for the launch of either the Alger 35 or for the Alger 25 ETF, for which another registration statement has been filed with the SEC.

First Trust Launches Gold Strategy ETF That Also Targets Income

First Trust has introduced the FT Cboe Vest Gold Strategy Target Income ETF (IGLD), which invests substantially all its assets in short-term U.S. Treasurys and cash equivalents and in the shares of a wholly owned subsidiary that holds Flexible Exchange Options (FLEX Options) that reference the price performance of GLD, the SPDR gold ETF which invests in physical gold and cash.

The investment objective of the FT Cboe Vest Gold Strategy Target Income ETF is to collect the  price returns of the SPDR Gold Trust (the “Underlying ETF”) while providing a consistent level of income. Its expense ratio is 0.85%.

“For some investors, the biggest criticism of gold has been the lack of yield,” said Karan Sood, Cboe Vest CEO, in a statement. “IGLD seeks to change that … Investors are now able to potentially derive income from gold while still retaining participation in its growth potential.”

First Trust has also acquired Cboe Vest S&P 500 dividend Aristocrats Target Income ETF (KNG), that invests in the index comprised of the those companies in the S&P 500 that that has paid and increased its base dividend every year for at least 25 consecutive years, the so-called Dividend Aristocrats. In addition, the ETF sells covered call options on a portfolio of the holdings of each stock each month to collect additional income for investors.

“By systematically applying a covered call strategy to a portfolio of dividend growth stocks, we believe this ETF may be an effective tool for investment professionals as they address the needs of income-seeking investors,” said Ryan Issakainen, ETF strategist at First Trust, in a statement.

Check out last week’s portfolio product roundup here:  Invesco Expands Multifactor ETF Suite: Portfolio Products

(Image: Shutterstock)

Bernice Napach

@Think_Napach

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