Fifty-nine percent of U.S. ETF issuers polled said they are either currently developing or planning to develop dual-share-class structure products, a Cerulli Associates survey shows.
With a parade of ETF issuers having filed with the Securities and Exchange Commission for exemptive relief to permit a dual-share-class structure “tremendous optimism exists for future product development opportunity,” according to a summary of The Cerulli Report—U.S. Exchange-Traded Fund Markets 2024.
Industry heavyweights BlackRock and State Street Global Advisors recently joined the list of firms seeking relief to offer a multiclass structure, SEC filings show. BlackRock is seeking exemptive relief to offer ETF share classes of mutual funds, an Oct. 30 filing shows. SSGA is seeking relief that would allow ETFs to offer mutual fund share classes, a Nov. 1 filing accepted Oct. 31 showed.
Of the 59% of issuers, 7% said they are currently developing dual-share-class products, while 52% said they were planning to develop such products, according to the summary, which included results from the Cerulli Associates 2024 U.S. ETF Issuer Survey.
The survey included 30 ETF issuers representing 90% of U.S. ETF industry assets, said report author Daniil Shapiro, director, product development at Cerulli.
“Dual-share-class mutual fund and ETF product is a holy grail of product development as it will allow investors to select the structure that works best for them for a particular exposure,” Cerulli said in the summary.
Still, the product development opportunity won’t be without headaches for sponsors, Shapiro said.
“Sponsors will need to work very closely with wealth management platforms to make their products available for purchase,” he said. “They will need to secure exemptive relief and launch exposures that can be supported by a transparent ETF structure that can’t be gated like a mutual fund can and then overcome platform concerns.”
According to the survey, 54% of issuers see broker-dealers' reluctance to make ETF share classes available on their platforms as a significant challenge, while 43% see that as somewhat of a challenge and 4% did not view that as a challenge.
Forty-three percent of issuers cited the operational complexity of supporting mutual fund and ETF share classes as a significant challenge, while 46% see that as somewhat of a challenge and 11% don’t see that as a challenge, the survey revealed.
