Funds Converting Mutual Funds To ETFs As BlackRock And Vanguard ETFs Feel Impact Of Chinese Companies Delisting

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Exchange-Traded Funds have been a central theme and a preferred investment vehicle for investors looking to diversify investment portfolios in the equity markets. Likewise, the ETF marketplace has registered significant capital inflows as investor’s eye broad exposure.

Mutual Funds Conversion

Concerned by the strong demand for ETFs, a number of mutual funds are contemplating changing their form, with a view of becoming ETFs. Three fund issuers are in the process of converting some of their mutual funds into ETFs.

Texas Dimensional Fund Advisors has already filled to convert four taxed managed mutual funds and two core mutual funds into ETFs. Milwaukee-based Guinness Atkinson Asset management is another fund that plans to convert several funds into ETFs.

The conversion is mostly fuelled by the fact that ETFs traded all day like stocks. Likewise, ETFs have lower costs and result in lower tax bills as compared to mutual funds. While the recent trend has favored ETFs, Mutual funds continue to dwarf ETFs with $22.5 trillion in assets under management. Compared to just $4.7 trillion for ETFs.

However, Mutual Funds have been on the receiving end in recent months given their high costs. Long term funds lost close to $470 billion in outflows in 2020. Likewise, only 32% of the funds posted net inflows in 2019 compared with 74% of ETFs.

BlackRock –Vanguard ETF Woes

Even as focus shifts to ETFs, the two largest ETF issuers BlackRock and Vanguard, are facing an uphill task to offload billions of dollars’ worth of investments mostly tied to ETFs. The U.S government’s decision to blacklist Chinese companies means index providers will have to remove the affected Chinese companies from the indices.

With the FTSE Russell, S&P, Dow, and JPMorgan moving to remove the blacklisted Chinese companies from indices, the two world’s largest passive fund managers will also have to adjust their ETF holdings. The Vanguard FTSE Emerging Markets ETF would be one of the most affected as it owns five of the blacklisted Chinese firms.

The Vanguard Total International Stock Index Fund, which tracks over 7,000 stocks, will also have to adjust and remove four of the blacklisted Chinese firms. The two passive firms are yet to state how and when they intend to offload the relevant blacklisted companies from the affected ETFs.

EV ETFs In Focus

Amid the BlackRock and Vanguard ETF woes, investors are increasingly turning to ETFs to gain exposure to the burgeoning electric car space. Solid growth and amazing one-year stock performance by Tesla continues to fuel demand for Electric vehicle ETFs.

While Tesla gained over 700% in 2020, other electric car makers led by Xpeng and Li Automobile were on a role gaining 964% and 716%, respectively. With the electric vehicle boom expected to edge higher in 2021, a number of ETFs should be in focus.

Global X Autonomous & Electric Vehicles ETF (DRIV) and iShares Self-Driving EV and Tech ETF (IDRV) are the two ETFs that should get a bid as investor’s eye opportunities in the EV space. The two companies track shares of active companies in the development of electric cars and autonomous driving segments.

Separately CI Global Asset Management has unleashed CI Munro Alternative Global Growth Fund that seeks to provide investors with exposure to risk-adjusted absolute returns through exposure to global growth equities.


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