Mutual fund providers are getting creative in an effort to add exchange traded funds to their offerings. From “mimicking” to “master-feed” strategies, Vanguard may have the most successful patent yet.
“More than a decade ago, Vanguard pioneered the idea of offering ETFs as a separate share class of existing mutual funds to create economies of scale and keep costs low. The Malvern, Pa., firm later secured a patent on the structure and so far has kept a monopoly on it,” Ari Weinberg wrote WSJ.com.
Mutual fund companies are keen on the action and inflows into the ETF industry. In response, many of these managers are getting ready to add ETFs to their offerings. Some providers are creating offshoots of mutual funds already trading, such as PIMCO Total Return ETF (NYSEArca: BOND).
The latest re-design comes from State Street Global Advisors, creators of the first ETF to trade, SPDR S&P 500 (NYSEArca: SPY). The “master-feed” design involves connecting the ETF to an existing mutual fund, with the ETF holding only the same shares as the original. [What’s Next in the ETF Fee War]
“Master-feeder is the beginning of a new innovation on improving the ETF structure,” Richard Keary of Global ETF Advisors, said in the WSJ story.