Future Belongs to ETFs, Not Mutual Funds: Guinness Atkinson

Guinness Atkinson Asset Management is moving to an all-ETF firm because its CEO believes that is the future of the fund industry. 

“Anyone looking at industrywide net flows into traditional open-end mutual funds and ETFs can see that investors are voting with their feet,” Jim Atkinson told etf.com. He is CEO of the Pasadena, California firm, the first to convert mutual funds to ETFs, back in 2021. 

Atkinson said no date has been set to complete the new conversions. Guinness Atkinson has total assets of $320 million, while its sister office in London has $10 billion in assets. 

Atkinson, who has been in the fund business since 1985, has been a big proponent of mutual funds: “But the ETF is a large incremental improvement over the traditional mutual fund. Investors have figured this out, which explains the disparity in net flows between the two types of funds.” 

The firm’s exchange-traded funds are under the SmartETFs brand name, which has $53 million in AUM. One conversion was the Dividend Builder Fund, which is now the SmartETFs Dividend Builder ETF (DIVS), up more than 12% year to date. The other was the Asia Pacific Dividend Builder Fund, now the SmartETFs Asia Pacific Dividend Builder ETF (ADIV), and up nearly 6% year to date.  

First ETF Conversions 

Guiness Atkinson’s first conversions to ETFs heralded a seismic shift in fund management. 

According to the 2023 J.P. Morgan Global ETF Handbook, there have been 16 such conversions during the past year. The total mutual-fund-to-ETF conversions so far are around 40, representing nearly $60 billion in assets. The largest conversion during the past year was the JPMorgan International Research Enhanced Equity ETF (JIRE), which currently has $5.6 billion in assets.

When considering conversion, Atkinson first studied 120 months of net flows by category. “Month after month of net inflows into ETFs and net outflows for mutual funds—I plotted the data on monthly bar graphs, and the image was very stark,” he said.

The 22-month conversion process began with only Atkinson and his attorney, Alex Alberstadt. They began meeting with the Securities and Exchange Commission in spring 2019. By the end, the team included their mutual fund transfer agent, an ETF transfer agent, the subtransfer agent for the ETF, a custodian, an administrator, a distributor, the NYSE, fund auditors and portfolio managers. They also had to figure out how to deal with its direct shareholders.

The conversion team’s meetings went from twice monthly six months ahead of the launch to weekly and then daily consultations as it sorted through the “ton of minutiae.” 

Betting on ETFs 

Atkinson said the conversions involved every aspect of business: legal, compliance, operations, shareholder communication, web development, capital markets and more. 

He said the comprehensiveness of the undertaking makes it so difficult, and that the actions must be coordinated: “A lot of the burden fell to our custodian and ETF transfer agent, Brown Brothers Harriman. They did an absolutely first-rate job.” 

As Atkinson and his team attempt to convert all its funds to ETFs, they will use their experience with their clients in mind. “As an industry, we need to offer the best that we can for investors,” he said. “I am not the only one predicting that eventually ETFs will replace mutual funds, but it will happen.” 

Follow Michelle Lodge on Twitter @lodgemich