Vanguard, the exchange traded and mutual funds giant, could lend its ETF share-class methodology to USAA, a provider of financial services to members of the armed forces and their families.
“Vanguard was granted a patent in 2005 for its ETF structure, which allows ETFs to be launched as different slices of existing mutual funds. Benefits can accrue to managers due to tax efficiency and reduced trading costs of the ETF class,” reports Chris Dieterich for Barron’s.
Pennsylvania-based Vanguard’s patent-protected ability to market ETFs as separate share classes of previously existing mutual funds is one catalyst behind the firm’s exponential growth in the industry. The company has been one of the most prolific ETF asset gatherers in recent years and now has over $471 billion in ETF assets, making it the second-largest U.S. ETF issuer behind BlackRock. [Behind Vanguard’s Asset-Gathering Dominance]
Jackie Noblett of Ignites reports that Vanguard is in discussions with USAA about a potential agreement to license Vanguard’s ETF share-class. USAA currently offers nearly 20 equity-based mutual funds.
USAA currently does not issue ETFs, but previously filed plans to do so. A recent filing by the company with the Securities and Exchange outlines the effort to offer ETF and mutual fund shares.
“Applicants request that the Order apply not only to the existing series of the Trusts, but also to any future series of the Trusts, as well as other future open-end management companies that may utilize active management investment strategies (the ‘Future Funds’). Any Future Fund will (a) be advised by USAA AMC, or an entity controlling, controlled by, or under common control with USAA AMC (each entity included in the term ‘Advisor’), (b) offer both ETF Shares and Mutual Fund Shares as described in this Application, and (c) comply with the terms and conditions of the Prior Order, as amended by this Application. The existing series of the Trusts and future funds together are each a ‘Multiclass Fund’ and collectively the ‘Multiclass Funds,’” according to the USAA filing.
ETF Trends editorial team contributed to this article.