The Rise of ETFs: What Investors Should Consider

A growing number of mutual funds are converting to exchange-traded funds (ETFs), providing more tax efficiency for investors. Since early 2021, over 70 mutual funds have converted to ETFs, with more conversions expected in the future. The conversion is tax-free for investors and offers the benefit of not distributing capital gains at the end of the year, unlike actively managed mutual funds. While conversions are still relatively rare, they have been seen mostly in smaller mutual funds worth around $100 million or less. Future conversions are likely to occur in smaller, actively managed mutual funds outside of 401(k) accounts.