ETFs or Mutual Funds? How to Target Benefits of Both Worlds. | The Informed Investor 50

Episode 50: Is investing in exchange-traded funds or mutual funds an either/or choice? Not anymore. Thanks to the recent debut of actively managed ETF share classes—which are tacked onto mutual funds—investors will get multiple access points to an increasing number of fund strategies. Not many funds currently offer an active ETF share class. But that’s likely to change in the months and years ahead. The SEC greenlighted actively managed ETF share classes in 2025, and numerous fund companies have publicly stated that they may offer them. Traditionally, the choice between an ETF or a mutual fund has largely depended on the use case. For example, assuming the underlying investment propositions and fees were similar, an investor might use mutual funds in their defined contribution retirement plan, such as a 401(k), and ETFs in their personal brokerage accounts. Alternatively, investors who value the ability to trade intraday might go for ETFs, while those who prefer the simplicity of trading at the end-of-day net asset value (NAV) might select the mutual fund. Now, one actively managed fund can serve both applications using the same investment process—and all investors can potentially reap significant benefits. For example, portfolio turnover arising from cash flows into either the mutual fund or ETF share class can be used for strategic rebalancing to increase expected returns across both share classes. And all shareholders stand to benefit from lower transaction costs and greater tax efficiency through rebalancing from transactions in the ETF share class. Plus, once the fund industry develops the necessary infrastructure, investors can look forward to nontaxable conversions between traditional share classes and ETF share classes. In Episode 50 of The Informed Investor, Dimensional’s Jake DeKinder, Head of Client Communications, David Kavanaugh, Global Head of Investment Operations, and Isabelle Williams, Deputy Head of Investment Solutions, break down this revolutionary change in the fund industry and discuss the advantageous implications for fund investors. TIME STAMPS 00:00 Intro 02:07 Headlines on ETF share classes 02:11 Revolution in the asset management industry 02:58 Advantages and differences of ETFs and mutual funds 04:35 History of mutual funds and ETFs 05:45 Characteristics of mutual funds versus ETFs 07:34 Tax efficiency of ETFs versus mutual funds 10:10 What is an ETF share class? 11:12 Conversions from a mutual fund share class to an ETF share class 12:11 Requirements for launching ETF share classes 13:30 Multiple access points to single fund 15:43 Track records of ETF share classes 16:39 Operational challenges for ETF share classes 19:47 Nontaxable conversions 20:54 Key takeaways LINKS FROM TODAY’S EPISODE: Subscribe to the Stay Calm Investing Newsletter https://www.staycalminvesting.com/new... The Informed Investor: Feedback Survey https://www.dimensional.com/us-en/inf... “The Informed Investor” on YouTube    • The Informed Investor   Dimensional Fund Advisors Shorts on YouTube    / @dimensionalfundadvisors   Jake DeKinder on LinkedIn   / jake-d-4105b98   David Kavanaugh on LinkedIn   / david-kavanaugh-59855a4   Isabelle Williams on LinkedIn   / isabellewilliams   Learn more at https://www.dimensional.com/ For US audiences: Select videos are available as part of an opportunity for CFP® and Investments & Wealth Institute® professionals to earn continuing education (CE) credits. https://www.dimensional.com/us-en/fin... #etfshareclass #multiclassfunds #activeetfshareclass #etf #rebalancing #turnover #401k #retirement #taxableaccount #dimensionalfundadvisors #dimensional #dfa