Call it the snowball effect.
An inconspicuous fund filing just before Christmas contained a hidden gem. The Snowball ETF (CPD), a forthcoming product in the RBB Fund Trust, will be subadvised by Gabe Plotkin, part owner of the Charlotte Hornets and former owner of now-defunct hedge fund firm Melvin Capital. If all that doesn’t ring a bell, Plotkin’s firm was strained to the breaking point in 2021 amid the GameStop short squeeze. That episode was parodied in the 2023 film Dumb Money, in which Seth Rogan played Plotkin.
Hopefully, we also don’t need to remind anyone about stonks, tendies and how those words made it into our vernacular.
Exchange Policy
One of the juiciest bits of news, however, is that Plotkin is reportedly planning to use the Snowball ETF for a 351 exchange for some of his personal wealth, per Bloomberg. That strategy can allow certain investors to move appreciated assets into exchange-traded funds (a one-time event) and defer capital gains taxes. That mechanism has exploded in popularity over the past year, both among ETFs specializing in that capacity for affluent investors as well as for RIAs rolling out their own strategies for clients. But the Snowball ETF doesn’t appear to be shopping around for seed investors as many of the 351 exchange funds do; the process is hardly mentioned in its prospectus.
“It’s really just a vehicle to allow assets to change strategies without realizing capital gains,” Bryan Armour, director of ETF and passive strategies research at Morningstar, said of 351 exchange ETFs. “It’s a positive thing overall, but what then matters is: Do you want to move into this new strategy?” Selling shares can trigger capital gains taxes, after all.
Some details about Plotkin’s ETF:
- It has an objective of long-term capital appreciation, with a strategy focused on 15 to 25 companies in industries experiencing growth.
- Total fees are 233 basis points.
- “Gabe is a good long-only portfolio manager,” Armour said. “I can certainly understand why he would want to be long-only after what happened in 2021.”
Is No News Better News? The development has certainly drawn more attention to the 351 exchange, which has been cast as a tool for the wealthy to defer taxes. Plotkin’s fund is part of the trend, and “capital moves to where it is treated best,” said Wesley Gray, CEO and co-CIO of Alpha Architect, a firm that has come to specialize in 351 ETFs. “As long as their group follows the statute (I’m sure they will, since the scrutiny will be high!) and aren’t trying to get cute or do things outside of the intent of the law, it’s all a nothing-burger.”