Podcast Center
Video Center
Webcasts
Resource Center
Events
August 23, 2023 at 10:36 AM
Vanguard Group has famously stood apart in the money-management world with its popular mutual funds offering the liquid ETF wrapper.
Now, F/m Investments is bidding to create essentially the opposite: Exchange-traded funds that tack on a mutual fund as a share class.
The Washington, D.C.-based firm is seeking permission to create mutual funds as a share class of its ETFs, according to a Tuesday filing with the Securities and Exchange Commission.
The structure would allow for the burgeoning ETF issuer to tap into parts of the investment world that are typically reserved for just mutual funds, like retirement accounts.
F/m’s move comes after two asset managers filed to mimic Vanguard and create an ETF share class of their existing mutual funds, in a bid to port the famous tax efficiency of an ETF into the mutual fund.
Vanguard held a patent on that specific design for over 20 years, but it expired this May.
See: Vanguard’s One-of-a-Kind Fund Design is Set to Get Some Competition
Distinct tax treatments have historically separated the ETF and mutual fund categories, with the former able to avoid capital-gains levies via its unique in-kind redemption process.
Vanguard, by creating ETF classes for some of its traditional products, has used the design — entirely legally — to slash the taxes reported by its funds for more than 20 years.
F/m Investments appears to be taking several tips from Vanguard’s playbook. In addition to applying with the SEC for permission to implement the fund design, the firm is also applying for a patent on their fund structure.
