Episode summary
That Mutual Fund Has an ETF Now | Trillions
Trillions
· · Hosts: Eric Balchunas, Joel Weber · Guests: Joel Schneider, Katie Greifeld
Summary
Dimensional Fund Advisors launched the first ETF share class of an active mutual fund, using its 45-year-old US Micro Cap Portfolio as the debut vehicle. The host framed the change as the long-awaited result of Vanguard’s expired patent, which had kept ETF share classes out of the market. The guest said the structure gives investors two access points to one portfolio, with the same underlying holdings available either directly as a mutual fund or on exchange as an ETF.
The discussion centered on why this matters for taxes, pricing, and distribution. The guest argued that investors who want to move from a mutual fund to an ETF can now do so in a tax-free way, and that one portfolio can spread costs across a larger asset base. Katie Greifeld noted that the micro cap fund has existed since 1981, while the guest emphasized its long track record and claimed it has beaten the Russell 2000 by 150 basis points a year annualized for 45 years.
The episode also explored what kinds of strategies fit the format and how quickly assets might follow. The guest said Dimensional has filed to bring 13 U.S. equity strategies into ETF share classes, with fixed income and non-U.S. markets likely later. The host and guests agreed that success will depend on automated conversions, market-maker capacity, and whether investors actually use the new wrapper.
Key takeaways
- Dimensional’s first ETF share class uses one underlying portfolio with mutual fund and ETF access points, letting investors choose the wrapper without changing the strategy.
- The guest said the conversion can be tax-free, avoiding a taxable sale when moving from a mutual fund to an ETF share class.
- The debut product is the U.S. Micro Cap Portfolio, a fund that the guest said has outperformed the Russell 2000 by 150 basis points annually for 45 years.
- Dimensional has filed to bring 13 U.S. equity strategies into ETF share classes, with fixed income and non-U.S. markets expected to follow later.
- The guest said automatic conversion tools, not manual paperwork, will likely determine how fast assets move into the new structure.
Notable quotes
“It it's both. There is one underlying portfolio that holds all the investments and there's two access points to it”
“they will be able to convert in a tax-free manner to get an ETF share instead of a mutual fund share”
“it targets companies that are in the smallest 5% of market cap in the US”
“we have filed to bring 13 different US equity strategies to the ETF share class rapper”
How the episode opens
Welcome to Trillions. I'm Joel Weber. — And I'm Eric Balchunis. — Eric, this is an episode that we've actually been waiting on for a while. Vanguard had this thing now that patent expired. What am I talking about?
Yeah. So, everybody knows what mutual funds are and they have share classes A, B, C, Ilass, depending on how much you can afford. Uh it's kind of like a regressive tax system.
The more you can pony up, the less they charge you, Joel. Um which is pretty consistent with the rest of society. But anyway, mutual funds have the share class system and then ETFs existed separately.
Vanguard developed a patent where the ETF would be just bolted into the mutual fund as another share class. But because of that patent, nobody could do it. But the patent expired a couple years ago and so basically like 80 to 100 mutual fund firms were like yeah let's do that.
So they all filed and the SEC starting to approve them and the guinea pig, the first one out of the gate to do a nonvanguardian ETF share class of a mutual fund is Dimensional DFA and they put it out recently and it's basically a big moment for the industry. It's wonky, but it's major. And the reason it's major is because those 80 to 100 issuers have in the ballpark of 10 trillion dollars in assets.
Wow. That's so if you're sitting out there and you own a mutual fund and you you uh kind of would rather have it in the ETF format, you might be able to uh get that without having to sell your mutual fund. You can maybe just move over. There's a lot of options now. And also, at the end of the day, ETFs are where the fish are biting, Joel.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- etfs vs mutual funds
- mutual fund etf share class
- vanguard patent expiration
- hybrid fund structure
- micro cap portfolio
Companies and tickers mentioned
- Dimensional Fund Advisors
- Vanguard
Watch the episode
Watch “That Mutual Fund Has an ETF Now | Trillions” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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