WASHINGTON / LONDON (IT BOLTWISE) – The US Securities and Exchange Commission (SEC) has taken a significant step by allowing ETFs as a share class for existing mutual funds for the first time. Dimensional Fund Advisors has become the first to receive approval, which could mark a sea change in the $34 trillion fund market.
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The US Securities and Exchange Commission’s decision to approve ETFs as a share class for existing mutual funds marks a significant turning point in the US fund market. This innovation could fundamentally change the way investors invest in funds. Dimensional Fund Advisors (DFA) was the first to receive approval, marking a milestone for the industry. This development ends Vanguard’s 20-year exclusivity, which protected a similar model with a patent that has now expired.
The new structure allows investors to invest in the same fund either through classic fund shares or as an ETF. This could lead to lower costs, more liquidity and better tax treatment, experts say. In the USA, ETFs use “in-kind” transactions to avoid capital gains taxes that are regularly incurred with conventional funds. These advantages could make ETFs even more attractive and further increase competition in the fund market.
The SEC’s decision could significantly shift the balance of power in the US fund market. The market, which manages around $34 trillion, has been facing a decline in traditional funds for years. Over two trillion US dollars have flowed out of equity funds in the past ten years. Experts expect a wave of new products as more approvals follow, which could lead to more choice for investors and increased competition among providers.
Despite the optimism, some questions remain unanswered. The SEC, under its chairman Paul Atkins, is taking a more innovation-friendly line that includes approving new products such as crypto ETFs. Requirements are intended to prevent conflicts of interest from arising between ETF and fund shares. It remains to be seen whether the new model will work in practice. What is certain, however, is that this decision will permanently change the US fund market.
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