Monday, September 16, 2024 on the Nasdaq Market website in New York, United States.
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KKM Financial has converted its Essential 40 mutual funds into ETFs, joining a growing shift by asset managers toward more tax-efficient fund models.
ETFs make it easier for investors and financial advisors with taxable accounts to choose when capital gains or losses occur. This differs from mutual funds, which sometimes leave investors with unnecessary tax bills due to withdrawals or portfolio changes.
“ETFs are much more tax efficient than mutual funds,” said Jeff Kilburg, founder and CEO of KKM and a CNBC contributor. “Many of the wealth advisors I work with do have concerns about the typical capital gains allocations of mutual funds. question.”
Many asset managers have been converting their mutual funds into ETFs in recent years, in part because of 2019 SEC rule changes that made it easier to run active investing strategies in ETFs. The number of active stock mutual funds has fallen to its lowest level in 24 years, according to Strategas.
More broadly, many asset managers are pushing for the U.S. Securities and Exchange Commission to allow ETFs to be added as separate share classes to existing mutual funds.
The newly converted KKM funds will trade on Nasdaq under the symbol ESN. Kilberg said the goal of Essential 40 is to let investors “buy what you use” in an equal-weighted fund. Its holdings include JPMorgan Chase, Amazon, waste management and Eli Lilly and Companyaccording to FactSet.
“We believe that without these companies, the U.S. economy would be hampered or in trouble,” he said.
The older mutual fund version of the Essential 40 earned a three-star rating from Morningstar. Its best relative performance in recent years came in 2022, when it fell less than 11%, well above the category average of about 17%, according to Morningstar.
During downturns, equal-weighted funds tend to outperform cap-weighted indexes. They’ve also been a popular strategy this year, driven in part by concerns about the market’s over-reliance on the so-called Big Seven stocks. this Invesco S&P 500 Equal Weight ETF (RSP) The company has attracted more than $14 billion in new investor funding this year, according to FactSet.
The KKM fund is up about 16% so far in 2024 before the switch and has about $70 million in assets, according to FactSet data.
This ETF has a net expense ratio of 0.70%, the same as the old mutual fund.
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