F/m Investments Preps First Mutual Fund Shares of ETFs

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 revolutionize retirement plans. This filing represents one of the first instances of product-specific dual-share-class approvals by the Securities and Exchange Commission (SEC). While Dimensional Fund Advisors was the first firm to receive approval for an exemption from the SEC, F/m Investments is optimistic about receiving the green light soon.

CEO Alex Morris of F/m Investments expressed his excitement about this development, calling it an “interesting accountancy issue.” The SEC has requested asset managers to file for dual share classes for all their funds, allowing funds’ boards to decide which strategies should have ETF or mutual fund share classes. Morris sees this as an elegant solution for fund boards and issuers to introduce new products.

One of the major advantages for F/m Investments is the ability to transfer existing ETF strategies to mutual funds seamlessly. Previously, firms had to launch separate products for this purpose, resulting in a loss of performance history. This history is crucial for 401(k) plan fiduciaries who rely on three- or five-year track records to evaluate investment options. By offering mutual fund share classes, F/m can leverage the performance history of their ETFs and benefit from existing scale levels.

While F/m Investments has filed for dual share classes for their existing products, they plan to initially introduce two mutual fund share classes of existing ETFs and one ETF share class of a mutual fund. With over $18 billion in assets under management, the company aims to offer mutual fund shares of their US Treasury 3 Month Bill ETF (TBIL) and Ultrashort Treasury Inflation-Protected Security ETF (RBIL).

In addition to the dual share class issue, F/m Investments is expanding its product range. They have launched passive fixed-income funds over the summer to avoid taxes associated with dividends. The company has also filed for a line of investment-grade corporate bond ETFs with varying maturities and is preparing to introduce an “opportunistic income” ETF.

Overall, the introduction of dual share classes by F/m Investments is a significant development in the financial industry. While most firms are extending mutual fund strategies to ETFs, F/m is taking a different approach. According to Morris, the ETF might actually save the mutual fund industry, contrary to popular belief. This move signifies a new era in retirement planning and investment options.

This article was originally published on The Daily Upside and offers exclusive insights into the evolving ETF landscape. To stay updated on the latest news and analysis in the ETF sector, subscribe to the ETF Upside newsletter.