ETF Share Class Requests Add to Pressure at SEC
Allspring Global Investments joins firms asking for Vanguard-style exemption.
Allspring Global Investments is the latest mutual fund provider to request permission to offer an ETF share class for its mutual funds, a trend that highlights massive shifts in the mutual fund industry that's losing investors to exchange-traded fund rivals.
Charlotte, N.C.-based Allspring’s June 20 Securities and Exchange Commission filing follows more than a dozen other asset managers' unapproved requests to carve a class of ETFs from their mutual funds. The so-called exemption was first, and last, pulled off by Vanguard Group more than two decades ago when it was granted a patent for the class of shares.
The new requests seek creation of actively managed funds, while the Vanguard patent covers a passively-managed index fund strategy. That patent held by Vanguard expired on May 16, effectively opening the floodgates for fund companies to file for similar relief for actively-managed funds.
SEC Faces Mounting Pressure to Approve ETF Share Class
Ben Johnson, head of client solutions at Morningstar, doesn’t expect the SEC to rule on the ETF share class filings anytime soon, but he also doesn’t expect the pace of filings from mutual fund companies to slow.
“The appeal from the mutual fund industry perspective is to stop the bleeding of assets moving out and into ETFs,” he said. “It’s not so much a growth play as it is a play to avoid de growth.”
He cited as an example Dimensional Fund Advisors, a major actively managed mutual fund issuer that launched its first ETFs a few years ago. Since then, its mutual fund's are bleeding cash at a similar rate its ETFs are pulling it in.

Click image to see a full list. Source: etf.com
Allspring, the former Wells Fargo Asset Management with $570 billion of assets under advisement, said the ETF share class filing is part of a larger push into the ETF space.
“We believe the multi-class structure provides benefits to all investors in the strategy,” the company write in an emailed statement. “We are also simultaneously considering single-class, stand-alone ETFs."
Donald Calcagni, chief investment officer at Mercer Advisors in Denver, said share classes reflect the mutual fund industry’s efforts to try and leverage active management strategies with the liquidity and tax efficiency typically associated with ETFs.
“The appeal is they know investors like to have intraday liquidity,” he said. “But even more important for long-term investors, ETFs have been more tax efficient than mutual funds, especially when it comes to active strategies.”
Johnson of Morningstar isn’t convinced the tax benefits of ETF investing will remain intact once an ETF becomes a mutual fund share class.
“The issues center around notions of fairness and whether it is fair to mutual fund holders and ETF share class owners,” he said. “From an ETF owner’s perspective there’s potential for tax contagion because when there’s an exodus from the mutual fund those taxable capital gains distributions spread across all share classes.”
Those might be some of the issues the SEC is considering when it comes to ETF share classes, but Johnson doesn’t think investors will have to worry about any of that for a while.
“There’s no ticking clock in this matter,” he said. “The SEC can drag their feet as long as they like, although I can’t help but feel like there’s mounting pressure on them every time there’s a new filing for an ETF share class.”
The SEC didn't immediately respond to a request for comment.