Use of Share Mutual Class Fund Will Be Limited: Framsted

Watch Use of Share Mutual Class Fund Will Be Limited: Framsted - Bloomberg on Dailymotion

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00:00I'm curious where things stand in terms of your applying an ETF share class on your mutual funds.

00:06Have you put in an application for that to the SEC?

00:09Yeah, so we have not put in an application to date, and it's a space that we're continuing to watch very closely.

00:16When we think about innovating at Capital Group, we tend to take a contemplative approach

00:21and really drive innovation in response to client needs when we know that we're able to solve a problem for them.

00:28For a lot of our clients, and in particular home offices that we have spoken with,

00:33the industry and infrastructure might not be ready yet to accommodate ETFs as a share class of a mutual fund.

00:39So the ability for clients to use that share class, we think, will be fairly limited for the foreseeable future.

00:45And until it becomes a share class that can be widely adopted,

00:49we do have some concerns that the tax efficiency of the ETF share class might be lesser than the tax efficiency of a standalone ETF.

00:56So for now, it's a space that we're watching, and we continue to believe that for truly tax-sensitive investors,

01:02the standalone ETF is going to be their best option to deliver on the outcomes they're expecting.

01:06That's really interesting, Holly.

01:08And just to follow up on one of the points you made there, when it comes to the industry preparedness,

01:14we've heard a lot of concerns about basically plumbing, whether the market makers within the ETF industry

01:19basically can handle what's expected to be in influx hundreds of ETFs coming to market.

01:25Are those some of the things specifically that you're concerned about?

01:28Yeah, we are concerned that the amount of kind of custom basket activity that the industry might not be prepared for that.

01:37We do know that the fungibility between, say, a retail mutual fund share class and the ETF share class,

01:43the mechanism to undergo that transaction seems to be a challenge for the industry.

01:48And so we just think that the existence of the ETF share class isn't necessarily going to be the panacea

01:53that clients expect or are looking for when they're looking to transition to a more tax-efficient solution.