ETF Share Class: Everyone’s Filing but No One’s Launching
ETF share class uptake remains slow, despite a plethora of filings. While part of the issue comes down to incomplete plumbing, could mutual fund history predict what’s really in store for ETFs? Morningstar’s Ben Johnson weighs in on the current state of play for the ETF share class.
Ben Johnson, Head of Client Solutions, Asset Management at Morningstar, connected with Dave Nadig, President & Director of Research at ETF.com on the ground at the 2026 ICI ETF conference. Their big-picture take from ICI this year is that the ETF industry is all grown up, now representing thousands of products and trillions of dollars, with ETFs pulling in well over a trillion dollars in net new money already this year. What Johnson found particularly striking was the number of sessions at ICI focused beyond ETFs, instead looking toward things like tokenization, which he frames as just the next wrapper for investment strategies in the same way ETFs replaced mutual funds as a more efficient packaging format.
From there they dig into the mutual-fund-to-ETF share class conversion trend. So far there's a big gap between interest and action: 104 firms have now filed for the exemptive relief that lets mutual funds add ETF share classes, but only four have actually made the leap, with one firm even going the opposite direction and launching a mutual fund share class of an ETF. Johnson chalks this up to incomplete infrastructure in the industry, although DTCC is building the plumbing to make mutual fund and ETF shares more fungible. For now, however, most filers are likely to stay in wait-and-see mode, exercising their option selectively based on what's best for existing shareholders. And as it turns out, some firms are skipping the share-class route altogether, instead doing full conversions when they don't have heavy 401(k) exposure to worry about. However, it's not an either/or situation, with some issuers (like Dimensional) doing both, converting some tax-managed funds outright while adding ETF share classes elsewhere.
The conversation wraps up on distribution economics and the sheer flood of new product. They talk about the resurgence of pay to play shelf space fees (even as Schwab moves further into the advisor business). Johnson frames it as a return to an old model that ETFs had briefly sidestepped before platforms caught on and started charging again. He notes ETFs are now closing in on 5,500-plus in number and will likely outnumber mutual funds in the U.S. within a year or two. In such a deluge, it’s only logical that a number of new products simply won't survive. Just as the mutual fund menu has been quietly shrinking for over a decade, Johnson anticipates the ETF space will eventually see its own wave of closures, even as the industry overall stays healthy.
Discover the news, data, and voices shaping the ETF community. Follow along here.
