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A Hundred Years On, Firm Behind First Mutual Fund Plans ETFs

MFS Investment Management has applied to create five actively managed exchange-traded funds spanning stocks and bonds, according to SEC filings.

(Bloomberg) -- After launching the world’s first mutual fund 100 years ago, MFS Investment Management is poised to make its debut in the ETF market.

In the most powerful sign yet that the low-cost trading vehicles are taking over the world of investing, the firm has applied to create five actively managed exchange-traded funds spanning stocks and bonds, according to Monday filings with the Securities and Exchange Commission. 

Their arrival will be a milestone moment in asset management. Until now, Boston, Massachusetts-based MFS was among the few holdouts to the $8.6 trillion ETF market. The firm is famously home to the Massachusetts Investors Trust, the first-ever open-end mutual fund that launched back in 1924. 

Mutual funds have been bleeding market share to their younger, more versatile competitors for years now in a tectonic shift of the investing landscape that has forced even the most old-school managers to embrace the new wrapper. The likes of Capital Group, Neuberger Berman Group LLC and Grantham Mayo Van Otterloo are among those to have made entries into the ETF world in the past three years. 

With about $630 billion under management at the end of March, MFS is one of the last major firms without an ETF offering.

“Every investment manager needs an ETF solution at this point because the growth rate is undeniable,” said Todd Sohn, ETF analyst at Strategas Securities. “Mutual funds will have a role for now, but ETFs remain the present and future for many investment managers out there.”

Mutual funds were drained of roughly $656 billion in 2023, while ETFs raked in $578 billion, Investment Company Institute data compiled by Bloomberg show. The trend has continued into 2024, with $65 billion flowing out of mutual funds while ETFs have absorbed more than $230 billion year-to-date. 

MFS says it continues to see long-term demand for its existing vehicles, but that the move is a response to interest in the ETF format.

“We believe offering active ETFs will complement our existing vehicle offerings and provide investors with greater choice,” a spokesperson said by email.

The firm submitted filings for the MFS Active Core Plus Bond ETF, the MFS Active Growth ETF, the MFS Active Intermediate Muni Bond ETF, the MFS Active International ETF and the MFS Active Value ETF. Fees and tickers for the funds are not yet listed.

While active ETFs have boomed in popularity over the past couple years — they’ve lured about $73 billion in 2024 alone — and the likes of Capital Group have successfully introduced “building block” type products, the planned funds would launch into well-established corners of the industry. Sohn reckons attracting new assets could be tricky given the crowded nature of the US market, where there are now almost 3,500 ETFs trading.

“I’m assuming they have a roster of clients who are interested in those strategies through the ETF form and will invest in them,” Sohn said. “But getting external money may prove challenging given the incredible saturation.” 

TAGS: Mutual Funds
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