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History made as first mutual fund formally converts into an ETF

Claire Ballentine, Bloomberg News on

Published in Home and Consumer News

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 Group 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 Inc. .

“For example, it would be difficult and generally unadvisable 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.”

Pot Luck

The new Guinness Atkinson ETFs got off to a slow start, with no trades as of 10:57 a.m. in New York.

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 (CANNX) has returned more than 140% in the past 12 months, but despite its success has less than $7 million in assets.

In contrast, pot ETFs have been enjoying record popularity. The ETFMG Alternative Harvest ETF (MJ), which has returned 94% in the past year, has $1.8 billion in assets.

“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

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