Northern Trust to Convert $33B in Mutual Funds to ETFs

• Six Northern Trust mutual funds are scheduled to convert into ETFs between January and March 2027.
• Each new ETF will charge a single fee that matches or undercuts its mutual fund’s current expenses.
• Shareholders without an ETF-friendly account could be cashed out, which may trigger a tax bill.

The six funds hold a combined $33 billion, according to the company. The moves will be the first mutual fund-to-ETF conversions for the investment arm of (NTRS).

Once complete, the switch would more than double Northern Trust’s ETF business. The firm managed $27 billion in ETFs as of June 30, according to the press release. That is less than 2% of the $1.6 trillion it oversees.

See more: The Great Wrapper Migration: Mutual Fund-to-ETF Conversions Cross 200

Most of the money sits in one fund. The Northern Stock Index Fund (NOSIX) holds $19.3 billion, according to the release. It will become the Northern Trust MSCI US 500 ETF (NTLC). The fund alone equals about 71% of the firm’s current ETF assets.

Next in size is the $6.7 billion Northern International Equity Index Fund (NOINX). It will convert to the Northern Trust MSCI EAFE ETF (NEFA), Northern Trust said. That index covers developed markets outside the U.S. and Canada.

The group’s only bond fund is the $2.8 billion Northern Tax-Advantaged Ultra-Short Fixed Income Fund (NTAUX). It invests in tax-exempt municipal bonds and will become the Northern Trust Tax-Advantaged Ultra-Short Income ETF (TAXU), the release showed.

Two smaller index funds are also on the list, according to the company. The $2.3 billion Northern Mid Cap Index Fund (NOMIX) will become the Northern Trust MSCI US 400 ETF (NTMC). Likewise, the $1.6 billion Northern Small Cap Index Fund (NSIDX) will convert to the Northern Trust MSCI US 2000 ETF (NTSC).

Finally, the $316 million Northern Income Equity Fund (NOIEX) focuses on dividend-paying stocks. It will become the Northern Trust Equity Income ETF (QDFI), the release said.

Each new ETF will charge a single all-in fee, known as a unitary fee, according to a September 25 filing with the Securities and Exchange Commission. That fee will match or undercut each mutual fund’s current expenses after fee waivers.

The filing also cited more trading flexibility, greater visibility into holdings and potential tax benefits. Though Northern Trust will run the funds in a similar way, some ETFs will track a new index.

Michael Hunstad, president of Northern Trust Asset Management, called the conversions “an important step in meeting growing client demand for ETFs.”

See more: Northern Trust Adds New Active Equity ETF NOEQ

NOIEX will be the first fund to convert, becoming QDFI on January 22, 2027, according to the filing. The three U.S. stock index funds follow February 26, with the international and bond funds on March 5.

Northern Funds’ board approved the plan September 24 without a shareholder vote, the filing showed.

Shareholders will swap their mutual fund shares for ETF shares of equal value in an exchange designed to be tax-free, the filing said.

To get them, however, investors need a brokerage account or retirement plan that can hold ETFs. Northern Trust recommends making the move at least a month before each conversion.

Investors holding shares directly with the transfer agent, which keeps shareholder records, must act. Otherwise, their shares will be cashed out, which may be taxable, according to the filing.

For an IRA or workplace plan that can’t hold ETFs or cash, the payout may count as a taxable distribution. Penalties may apply unless the money goes into an eligible retirement account within 60 days, the filing said.

Even shareholders who stay put could feel the effects. Cash-outs by investors whose accounts can’t hold ETFs may cause a fund to realize capital gains, according to the filing. That could mean taxable distributions for remaining shareholders.

Originally published on Advisor Perspectives

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