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‘Floodgates’ open on mutual funds converting into ETFs

Investor hunger for more exchange-traded funds (ETFs) is catching the attention of asset managers now eager to convert their mutual funds.

[Read: Yahoo U: What are ETFs?]

On Wednesday, JPMorgan Asset Management announced plans to convert about $10 billion in U.S. mutual funds into ETFs, the latest in a trend that could be set to accelerate. The plan will create “active transparent ETF structures” out of four current mutual funds: JPMorgan International Research Enhanced Equity Fund, JPMorgan Market Expansion Enhanced Index Fund, JPMorgan Realty Income Fund, and JPMorgan Inflation Managed Bond Fund.

Like others that have recently converted mutual funds into ETFs, JPMorgan cited better transparency and potential tax benefits as reasons for the change. Intraday liquidity is also a major selling point for ETFs which, unlike mutual funds, can be traded.

“As a leading active manager, it is important to us that we continue to deliver our investment capabilities in the vehicle that meets our clients’ desired outcomes,” said Bryon Lake, head of JPMorgan’s Americas ETFs.

Dimensional Fund Advisers was one of the first to announce a conversion, announcing in November last year that it would convert six mutual funds into corresponding ETFs. A number of other funds, such as Guinness Atkinson and Adaptive Investments, followed in the months after with conversions of their own.

“It was really well received. That just opened the floodgates for us to start seeing all these other asset managers consider that as a pathway to ETFs,” said Cinthia Murphy, the head of digital experience at ETF.com.

Murphy told Yahoo Finance that JPMorgan’s move “suggests we may just be at the beginning of this trend taking shape here.”

Investor demand for ETFs across the board have exploded as of late. In 2020, ETFs saw a record $507.4 billion in inflows, according to ETF.com.

But the pandemic boom in ETFs merely extends a multi-year trend of inflows into ETFs and outflows from passive funds, at least when looking at funds targeting U.S. equities.

A report from Bank of America Securities highlights the 15-year trend of rising popularity in passive funds.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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