Converting a Mutual Fund to an ETF: Key Considerations

Investment Management Update

Date: July 15, 2019

Key Notes:

  • The ability to convert mutual funds into ETFs could greatly facilitate an asset manager’s goal to enter the ETF business.
  • Asset managers can take advantage of the new non-transparent, actively managed ETF to convert actively managed mutual funds.
  • Certain issues still need to be resolved before the first mutual fund to ETF conversion takes place.

Asset managers are exploring the idea of converting mutual funds into exchange-traded funds (ETFs). This comes at a time when the Securities and Exchange Commission (SEC) has allowed the first non-transparent, actively managed ETF, which enables asset managers to offer their actively managed strategies in an ETF product without divulging the “secret sauce” behind them. This combination of regulatory developments could pave the way for mutual fund complexes to transform some or all of their mutual funds into non-transparent, actively managed ETFs. Asset managers of actively managed mutual funds less sensitive about daily disclosing their investment portfolios could convert those funds into traditional, fully transparent ETFs.

To date, no mutual fund has been converted into an ETF. Such a conversion raises regulatory and operational issues, none of which are insurmountable. In this publication, we discuss the issues and steps that asset managers and their counsel need to consider in converting a mutual fund into an ETF.

View or download "Converting a Mutual Fund to an ETF: Key Considerations."