A Turning Point: First Mutual Fund Converts Into ETF

As if ETFs’ market dominance wasn’t already clear by now, this historic development cements their rising star status. Namely, Guinness Atkinson Funds now holds the honor of being the first mutual fund provider to change its products into exchange-traded funds.

The decision was announced on Monday—two of its mutual funds have been converted into the SmartETFs Dividend Builder (ticker DIVS) and SmartETFs Asia Pacific Dividend Builder (ADIV).

Shareholders won’t be taxed because of this development, nor should they worry about their funds’ performance history, as it will be retained.

To anyone who’s been keeping up with the stock market, this comes as no surprise. ETFs have experienced exponential growth over the past decade; it was only a matter of time until they started overtaking mutual funds. After all, the ETF industry is currently valued at the head-spinning amount of $5.9 trillion.

The Rise of ETFs

Exchange-traded funds are the lovechild of mutual funds and stocks, combining the best of both worlds. They function on the same “money pooling” principle as mutual funds and can be bought or sold during any time of the day like stocks.

Although ETFs were first created in Toronto in the distant 1990 (1993 in the US), they had a slow and steady rise up until a pivotal event caused them to gain traction—the 2008 global financial crisis. Investors became disillusioned with mutual funds, so they turned to ETFs as their preferred investment vehicle because of their many benefits, some of them being:

  • Diversification
  • Transparency
  • Passive management
  • Liquidity
  • Lower management fees
  • No annual capital gains tax

Nowadays, obviously, ETFs are doing better than ever. Investors are especially excited about the prospect of creating a Bitcoin ETF, which would allow them to avoid the hassle of trading Bitcoins. An increasing number of IRA investors also decide to invest their money in ETFs due to their superior features compared to mutual funds, which used to be their go-to.

What the Future Holds

Being on the rise for so long, you would think that ETFs would be the norm by now. However, mutual funds are still considered the safer and more-established option. This switch to ETFs by a major investment company threatens to change that—it can start a domino effect, giving other providers a push to lean towards ETFs over mutual funds. The result? ETFs finally getting the recognition and reputation they deserve.

At this point in time, ETFs show no signs of slowing down. Experts predict a continued growth during the following five-year period at least. The benefits they offer will likely draw in a growing number of investors, which will result in them surpassing mutual fund assets. Some say this will occur no later than in five years. That sounds about right to us.

ABOUT AUTHOR

My eyes rarely take a break from staring at my laptop's screen—I am Big Brother, scanning the web for news and information worth sharing. Full transparency—a substantial chunk of my screentime is also dedicated to watching TV shows, but balance is key, right? Writing is how I choose to share my findings with the world while keeping my love of language and creativity alive.

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