The Sequoia Fund, a $3.6 billion mutual fund, is making a significant change by converting to an ETF. This decision, disclosed in regulatory filings by the investment team behind the fund, Ruane Cunniff, is primarily driven by tax considerations. By converting to an ETF, taxable investors in the Sequoia ETF will be able to defer the realization of taxable gains for as long as they maintain their investment in the fund.
The move reflects a broader trend in the industry, with assets flowing out of mutual funds, particularly actively managed ones, and into ETFs. Dan Sotiroff, associate director of ETF and passive strategies research at Morningstar, noted that about half of the Sequoia Fund’s assets are from capital gains, making the tax issue a significant factor in the decision to convert to an ETF.
The Sequoia Fund has faced challenges in recent years, including performance issues and outflows. The fund was involved in litigation stemming from high allocations to Canadian drugmaker Valeant Pharmaceuticals, which resulted in losses. Despite these setbacks, the fund has evolved, with its largest allocation now being to Rolls Royce.
Since 2015, the fund has struggled with performance, leading to outflows totaling approximately $6.5 billion. While performance has lagged behind the market and its Morningstar category in some years, it saw positive returns in 2018, 2021, and 2025.
The conversion to an ETF will involve moving all of the mutual fund’s shares to the ETF, with clients in separately managed account strategies having the option to choose whether to transfer their assets. However, moving to an ETF structure comes with challenges, such as the inability to place restrictions on new investments. This could potentially impact the fund’s ability to manage capacity issues in the future.
Overall, the transformation of the Sequoia Fund into an ETF represents a significant shift in the investment landscape. As the industry continues to evolve, investors and advisors will need to stay informed about these changes to make informed decisions about their portfolios. For more insights and analysis on ETFs and the evolving investment landscape, subscribe to The Daily Upside’s ETF Upside newsletter.
