Investments in exchange-traded funds (ETFs) in the US are breaking records: since the start of the year, investors have poured more than $900 billion into them. This boom may intensify thanks to a new decision by the US regulator, which will allow tax-free conversion of units of traditional mutual funds into ETF shares. This is reported by The Wall Street Journal.
The main catalyst for the future growth of the ETF market may be a recent decision by the US Securities and Exchange Commission (SEC). The regulator has given preliminary approval for the creation of funds with a dual-class share structure.
Simply put, this will enable investment companies to add an ETF version to their existing mutual funds (or units). Most importantly, investors will be able to convert their units in a mutual fund into ETF shares without paying capital gains tax.
The technology was previously patented by the giant Vanguard. Still, the patent is set to expire in 2023, which will open the market to all. Tax implications were a significant barrier that prevented billions of dollars from being invested in older, less efficient mutual funds. Now that the barrier is disappearing.
Total assets in U.S. ETFs have already reached a record $12.19 trillion.