The world of 401(k) plans is about to see a significant change with the introduction of dual share classes. F/m Investments recently filed for the first mutual-fund share classes of ETFs, a move that could potentially revolutionize retirement plan offerings. This development marks a significant shift in the industry, as it is one of the first prospectuses presented to the Securities and Exchange Commission for product-specific dual-share-class approvals.
Dimensional Fund Advisors was the first firm to receive approval for an exemption from the SEC, paving the way for other companies like F/m Investments to follow suit. While F/m has not yet obtained broad approval from the SEC, CEO Alex Morris remains optimistic about the company’s prospects. The SEC’s decision to grant exemptions has prompted asset managers to file for dual share classes for all their funds, giving fund boards the authority to determine which strategies should receive either an ETF or mutual fund share class.
Morris emphasized the significance of this development, highlighting the elegance of this approach for fund boards and issuers to introduce new products. By offering dual share classes, F/m can seamlessly transition existing ETF strategies to mutual funds, eliminating the need for separate products. This transition allows for the preservation of performance history, a crucial factor for 401(k) plan fiduciaries who rely on track records to evaluate investment options.
Despite filing for dual share classes for its existing products, F/m Investments plans to initially introduce two mutual fund share classes of existing ETFs and one ETF share class of a current mutual fund. With over $18 billion in assets under management, the firm aims to offer strategies from its US Treasury 3 Month Bill ETF (TBIL) and Ultrashort Treasury Inflation-Protected Security ETF (RBIL) as mutual fund shares.
In addition to the dual share class initiative, F/m Investments is expanding its product offerings. The company recently launched a series of passive fixed-income funds designed to minimize taxes associated with dividends. It has also filed for a line of investment-grade corporate bond ETFs with varying maturities and is preparing to introduce an “opportunistic income” ETF.
The introduction of dual share classes represents a significant shift in the industry, with many firms seeking to extend their mutual fund strategies to ETFs. However, F/m Investments is taking a different approach by introducing mutual fund shares of existing ETFs. Morris believes that this strategy could potentially revitalize the mutual fund industry, which has seen outflows in favor of ETFs in recent years.
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