The class is getting crowded.
There are a lot of new names on the dual-share-class roster, as the Securities and Exchange Commission on Tuesday granted exemptions for about two dozen asset managers. The SEC has been giving approval in waves, with the latest including the likes of Goldman Sachs, Franklin Templeton, T. Rowe Price and Columbia Funds. That ultimately means there will be a lot of ETF share classes tacked onto mutual funds, and vice versa, in some cases. But even as a lot of shops now have keys to the kingdom, they don’t really have anywhere to go, yet. Unless firms have a lot of experience on both the mutual fund and ETF sides, they must build out their capabilities to offer both, or go through third parties to make that happen.
“A lot of people see the news of the SEC granting a lot of exemptive relief and assume there will be a flurry of product launches to follow,” said Matt Barry, a vice president at Touchstone Investments. “By and large, you’re going to see most ETF issuers wait until the infrastructure is built out.”
Waiting Period
One quirk is that companies must add mechanisms in order for ETF and mutual fund shares to be exchanged, Barry noted. Distribution has also been a lingering issue, as ETFs aren’t built to provide compensation to broker-dealers, as mutual funds do with their revenue-sharing fees. Still, one firm, Vanguard, has been offering ETF share classes of its mutual funds for years, as it had a patent that only recently expired. That was limited to passive funds, but under the new SEC exemptions, active funds are getting the dual-share-class treatment.
So far, only a few other firms have launched dual share classes:
- F/m Investments was the first to do so under the new SEC approvals, adding a mutual fund share class of its US Treasury 3 Month Bill Fund ETF (TBIL).
- Dimensional Fund Advisors was the first to add an ETF share class of an actively managed mutual fund, one for its US Micro Cap Portfolio.
- Thornburg Investment Management earlier this month rolled out ETF shares of its American Opportunities Fund and Focus Growth Fund.
Soon Enough. Touchstone, which was among numerous firms that received exemptions for dual share classes in February, may add its first in the second half of 2027, Barry said. It’s reasonable to expect most other asset managers to start adding share classes in two or three years, he said. When they do, the tax efficiency of ETFs will help the mutual funds they’re affiliated with. “It will be very beneficial in time,” Barry said.