Van Eck Global, the provider of the Market Vectors suite of exchange traded funds, is seeking to mimic Vanguard‘s successful offering of ETF share classes on existing mutual funds.
According to a regulatory filing with the Securities and Exchange Commission, Van Eck is trying to launch an additional ETF share class on one or more of its five mutual funds, which would be listed and traded like a stock on an exchange, reports Jackie Noblett for Ignites. [More Hedge Funds Tap ETFs]
“The ETF shares and mutual fund shares will each represent interests in the same portfolio of investments,” Van Eck noted in the filing.
Additionally, the filing states that shareholders in the mutual funds will be able to convert to ETF shares, tax free, but ETF holders won’t be able to convert to mutual funds.
The ETF share class would allow the ETF product to gain economies of scale, improve liquidity and diminish costs for both mutual fund and ETF investors.
“It’s a very elegant, simple solution that benefits both the ETF and the mutual fund investor,” Scott Burns, director of global ETF research at Morningstar, said in the report.
Vanguard, the inventor of the ETF share class structure, has patented the process and technology to create an ETF share class, providing 64 ETFs as share classes of a corresponding mutual fund. By riding off the back of an existing mutual fund, the ETF would garner an early advantage in attracting assets through leveraging the mutual fund’s reputation, assets and performance record. [Behind Vanguard’s ETF Success]
However, Van Eck proposes to create ETF share classes on active funds, including commodities, emerging markets and other alternative strategies.
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Max Chen contributed to this article.