LIVE MARKETS-ETF share class to mutual funds: A point of discussion for Q3 earnings​

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

ETF SHARE CLASS TO MUTUAL FUNDS: A POINT OF DISCUSSION FOR Q3 EARNINGS

After the U.S. Securities and Exchange opened the window for an asset manager to add exchange-traded share classes to mutual funds last week, Morgan Stanley believes that could act as potential catalyst for industry consolidation and would be a point of discussion during upcoming corporate earnings.

The regulator's order, that has been long-awaited by the investment industry, will be open for public response before the SEC moves ahead - and is specific to Dimensional Fund Advisors.

"We see scope for widespread ETF share class approval that could be a positive catalyst for a space but might also introduce some regulatory uncertainty," said Morgan Stanley analysts in a note dated Oct. 6.

Investors would be able to buy and sell the exchange-traded mutual fund shares throughout the day at the market price through their brokerage accounts, instead of waiting for a mutual fund order to settle at the day's closing price.

It has the potential to open up access to a host of existing funds to investors who prefer owning ETFs because of their low cost, tax advantages or liquidity.

"We expect many asset managers to add ETF share classes to their top funds once approval is obtained, ultimately triggering a surge in the number of new exchange-traded products competing for investor dollars," Morgan Stanley noted.

Previously, the regulator gave Vanguard permission to pioneer the dual-share class model more than two decades ago under a patent that expired in May 2023.

There are now about 80 applications similar to Dimensional Fund Advisors' to launch an ETF share class for existing mutual funds, the SEC said last week.

"ETF share class approval is yet another potential catalyst for industry consolidation as it likely places significant money in motion and raises greater questions/focus around shelf space that's expected to narrow in the coming years, likely leading increased strategic activity," the Wall Street brokerage said.

For the third-quarter earnings, Morgan Stanley expects ETF share class to be a major topic of discussion, with focus around management's stance on what portion of mutual funds in their respective line ups that they will make ETF share classes available.

(Siddarth S)

*****

FOR TUESDAY'S OTHER LIVE MARKETS POSTS

RETAIL INVESTORS SOLD AMD'S EYE-WATERING RALLY CLICK HERE

US FUTURES EDGE UP WITH FOCUS ON FED SPEAKERS CLICK HERE

NO NEWS IS GOOD NEWS FOR THE DOLLAR CLICK HERE

AS MARKETS RALLY, CITI FLAGS NASDAQ PROFIT-TAKING RISK CLICK HERE

FRENCH ASSETS TAKE A BREATHER, BUT UNCERTAINTY REIGNS CLICK HERE

STOXX SLIPS AS MINERS, HEALTHCARE WEIGH CLICK HERE

EUROPE BEFORE THE BELL: TEPID START IN STORE, TRADERS EYE ON FRANCE CLICK HERE

DEEPENING GLOOM IN PARIS CLICK HERE

(Terence Gabriel)

*****