Single-bond ETF manager goes against current by asking SEC for mutual fund share class

investmentnews.com:

A boutique fund manager with a line of single-Treasury-bill ETFs is trying to follow in Vanguard’s footsteps — but in reverse — hoping to add a mutual fund share class to the products.

On Tuesday, F/m Investments filed a request for exemptive relief with the Securities and Exchange Commission for the share class that would accompany the year-old $2.4 billion line of 10 ETFs, citing the much larger asset manager’s success over 20 years in doing the opposite, adding ETF share classes to existing mutual funds.

The small shop isn’t the first to try to take advantage of Vanguard’s now-expired patent, which as of May is no longer in effect. In July, for example, Dimensional Fund Advisors asked for the SEC’s blessing to add ETF shares for numerous actively managed mutual funds — something even Vanguard has not been able to secure.

But F/m, which would be adding a mutual fund share class to its US Benchmark ETF line, is the first to propose the opposite. The idea also comes at a time when fund providers have either converted existing mutual funds to ETFs or added separate ETF versions of products. Sales in the U.S. have increasingly favored ETFs, including actively managed ones, as advisors have shown more interest in ETFs than mutual funds — a trend reflective of the products’ lower fees and tax benefits.

But one area where ETFs have been slow to catch on is a big one: the 401(k) market. And that is what F/m has in mind for mutual fund shares of its single-Treasury ETFs, company president Alexander Morris said.

There is “a $6 trillion world out there of retirement plans who are obligate mutual fund buyers,” Morris said. “They’re mutual fund consumers. And mutual fund consumers get cut out of all the innovation happening in the