Malvern-based Vanguard Group has reaped the benefits of a unique structure that transferred the advantages of an exchange-traded fund onto its largest mutual funds for decades, write Emily Graffeo and Loukia Gyftopoulou for The Philadelphia Inquirer.
The patent-protected design saved Vanguard investors billions of dollars and helped the firm founded by Jack Bogle become an $11 trillion giant.
Vanguard now faces the prospect of losing its long-held competitive edge, as the U.S. Securities and Exchange Commission plans to let quantitative firm Dimensional Fund Advisors adopt the same structure which will open the door for around 80 other firms awaiting approval to follow.
The widely sought model establishes an ETF as one of a mutual fund’s share classes, bringing the tax advantages of the newer structure to a traditional fund.
If approvals proceed, the move could spark a wave of new ETF launches, transform the tax strategies and performance of numerous mutual funds, and gradually dismantle the barrier that has largely kept ETFs from American retirement accounts.
Major asset managers, including BlackRock and Fidelity Investments, have been poised to implement the hybrid structure ever since Vanguard’s patent expired two years ago, awaiting regulatory approval to move forward.
Read more about Vanguard Group’s patent expiring for its exchange-traded fund in The Philadelphia Inquirer.
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