While some strategies might be more complicated to convert into an ETF, it is not impossible with the right partner.
There are many benefits and unique advantages the ETF structure can offer investors. Perhaps, you’re even considering converting your SMA or mutual fund into an ETF.
One thing to keep in mind is the complexity of the path forward. Converting your strategy into an ETF can depend on the investment scope of the strategy itself. Due to differing rules and regulations regarding some asset classes and markets, this conversion process can be relatively straightforward or could involve many more steps.
The Simplest Path
Generally, the easiest type of strategy to convert into the ETF wrapper is a domestic, long-only strategy. Another type of strategy that is relatively straightforward to convert would be a fund-of-funds that consists of various ETFs, rather than holding individual stocks.
Strategies that involve international markets can be slightly more complicated to convert. Though many U.S. investors hold SMA or mutual fund investments that have an international scope, they may be unaware of the differing rules and regulations that govern these foreign markets.
Different Markets, Different Rules
Some foreign countries, including many emerging markets, are restricted from performing in-kind deliveries of securities. Such markets, where securities are delivered cash in-lieu, rather than in-kind, can create additional nuances during the conversion process. In addition, there may be requirements for transaction taxes, as well as various fees imposed on the movement of some foreign securities that add to the complexity of a conversion process.
For strategies that involve fixed income securities, lot sizes might need to be taken into consideration and can have an impact on the complexity of the conversion.
Getting Help from a Team with Deep ETF Experience
In summary, there are several factors that need to be taken into consideration when thinking about converting a strategy into an ETF. And while these types of strategies might be more complicated to convert into an ETF, it is not impossible. This is why it is important to choose the right partner with an experienced team that can facilitate the conversion process and can help you understand the necessary steps to successfully convert your strategy into the ETF wrapper.
If you are interested in learning more, contact us to discuss our experience in helping seamlessly transition many different types of SMA and mutual fund strategies into an ETF.
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