ETF Trends
ETF Trends

Thanks to a proposed rule by the Securities and Exchange Commission (SEC) , it will become easier for mutual funds to invest in exchange traded funds (ETFs). But the question is, will they?

After all, these two have become increasingly fierce competitors over the years as ETFs continue to gather assets and mutual funds lose them.

The current rule is that mutual funds and other investment companies can only acquire 3% of another investment company’s shares, says Murray Coleman for Investment News. The proposed rule is expected to go through after a 60-day comment period. Once it does, not only will mutual funds be able to make bigger ETF investments, but ETFs will be able to enter the marketplace more swiftly than they have in the past.

James Pacetti, president of ETF International Associates Inc., says he doesn’t see mutual funds biting when it comes to actively managed ETFs. That’s because only ETFs that follow a completely transparent index will allow them to know what they’re holding at all times.

Hmmm…That’s kind of ironic, when you think about it.

Another reason mutual fund managers might not go crazy with the ETFs is that it could raise questions as to what the manager is doing to earn his or her money. Investors might not like paying high fees for what amounts to less work.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.