Dimensional Fund Advisors has filed an amended application with the Securities and Exchange Commission for an exemption to allow its mutual funds to offer exchange-traded fund share classes — a structure that Vanguard has offered exclusively for over two decades — following "productive conversations with the SEC staff."
"Dimensional has the longest pending application of more than 50 active applicants for share class relief, which together represent over $15 trillion in mutual fund and ETF assets. Many of the managers who have subsequently filed for exemptive relief have followed Dimensional’s application closely, and analysts have noted the firm’s application has become an industry template," the firm said in a statement Tuesday.
The asset manager applications have come amid money outflows from traditional mutual funds and into ETFs, which generally offer lower fees and better tax efficiency.
Dimensional believes that a fund's ability to offer both mutual fund and ETF shares could be beneficial to the fund and to shareholders of each class type, according to the application.
"Applicants believe that the multi-class structure will allow investors to choose the manner in which they wish to hold interests in a Multi-Class ETF Fund based on the share class characteristics that are most important to the investor," the firm said.
At a recent industry conference, Dimensional noted in the statement that the SEC's acting chair, Mark Uyeda, has directed staffers to prioritize the review of ETF share class applications.
"We believe that our revised application could continue to serve as a model for the industry and provide a path to approval this year to offer the benefits of ETF share classes to more investors," Gerard O’Reilly, Dimensional's co-CEO and co-chief investment officer, said in the statement. "We appreciate Acting Chairman Uyeda’s recent public comments prioritizing the review of the applications filed for this relief. If approved, we believe increasing share class availability would be a significant win for investors and carry the potential to revolutionize the ETF and mutual fund landscape.
"The ability to offer both mutual fund and ETF share classes in certain funds could provide lower transaction costs, tax efficiencies, and benefits of scale to all shareholders. Granting ETF share class relief more broadly would give investors more fund groups and strategies to choose from, and competition in the market would benefit investors by incentivizing funds to operate efficiently and keep fees and expenses low," O'Reilly said.
"Allowing existing mutual funds to offer ETF share classes would also give investors more choice by enabling them to decide on their preferred way — an ETF share or mutual fund share — to access the same strategy," he said.
Under its ETF rule adopted in 2019, the SEC requires firms to apply for exemptive relief to offer ETF share classes in mutual funds.
Dimensional said it is the largest active ETF issuer with about $180 billion in ETF assets under management. The firm’s suite of 41 ETFs has more than $100 billion in flows since the launch of its first ETF in 2020.
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