Harbor Capital Advisors recently completed the asset management industry's first merger of a mutual fund into an existing exchange-traded fund, according to a report by Bloomberg Intelligence ETF analyst Henry Jim, who expects more such mergers to follow.
In February, Harbor folded its Harbor High-Yield Bond Fund mutual fund into the Harbor Scientific Alpha High-Yield ETF, Mr. Jim said in his March 2 report.
As ETFs have gathered inflows at the expense of traditional asset managers' mutual funds, those managers have tried to adapt, first by launching active ETFs that mimicked existing mutual funds and then by converting their mutual funds into ETFs, according to the report.
The completion of the first merger of a mutual fund into an existing ETF marks the emergence of a new strategy, the report said.
"I would say it's a natural evolution of the flows that are happening, mutual funds vs. ETFs," Mr. Jim said in a March 3 interview.
Harbor believes the ETF structure offers investors "structural advantages over mutual funds, such as cost efficiency, liquidity and tax efficiency," said Steve Cook, a managing director and head of ETFs at Harbor Capital, in comments emailed to Pensions & Investments by a spokesman.
"We also think the manager (BlueCove) for the SIHY ETF offers investors a unique investment strategy/philosophy that has delivered solid performance, and the combination of those two things was very compelling," Mr. Cook said, referring to the Harbor Scientific Alpha High-Yield ETF by its ticker symbol.
Assets of the two funds were merged Feb. 27, and Harbor believes the merger marks the first time a mutual fund has been merged into an existing ETF, Mr. Cook said.
As of March 3, the Harbor Scientific Alpha High-Yield ETF had $151 million in assets under management, according to Harbor's website. Just prior to the merger, the mutual fund's assets totaled $117 million while the ETF had about $32 million in assets, he said.
Asked whether Harbor had plans for any additional such mergers, Mr. Cook didn't rule out the possibility.
"Harbor is constantly reviewing our product lineup to provide the best experience for our clients in all asset classes," Mr. Cook said, adding, "if we think there is an opportunity to offer our investors a better product/structure we will do that."
Bryan Armour, director of passive strategies research for North America at Morningstar Research Services, a Morningstar subsidiary, said Harbor's is the first mutual fund-to-ETF merger of which he's aware.
"Like conversions, there will probably be more of these in select instances where it makes sense, but I don't expect to see a big wave of them," Mr. Armour said in a March 3 email.
Harbor had about $37.3 billion in total assets under management as of Dec. 31.
