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Alex Morris, F/m Investments
Alex Morris, F/m

F/m Investments seeks out mutual fund route for its treasury ETFs


F/m Investments LLC, a wholly owned subsidiary of Diffractive Managers Group, LLC, has taken quite another route with its exemptive application with the US SEC, seeking an order that would permit each of the ETFs in the US Benchmark Series – a suite of 10 ETFs designed to simplify access to the US Treasury market – to offer a mutual fund share class. 

Alexander Morris, F/m’s President and CIO, explains that mutual funds might have lots of complications compared with the newer and more flexible ETF, but they are the easier route for investors planning their retirement using a 401 (k). “Investors might not be able to use an ETF is these plans,” Morris says, mostly due to the way the systems have been designed. “Most 401 (k) management companies will give you a list of mutual funds you can use, which is how they built the technology. We tried to eat our own cooking by investing and found how just how hard it was to invest in our own ETF products in our own company’s 401 (k) — and learned firsthand why a mutual fund share class is still necessary.”

It means that there is a USD6 trillion market unavailable to ETF issuers, even a firm like F/m, which Morris describes as a ‘boutique’ but has USD15 billion under management. “We have to think a little differently and what we are good at is innovation,” Morris says. “Everyone was going one way and we thought we would swim up current as it were. ETFs have been super innovative since 6c-11 came in and now a whole host of mutual fund investors are locked out of what we and the folks who read what you write every day are up to.”

The firm’s US Benchmark Series is aimed at investors who would naturally invest in treasuries and has raised USD2.5 billion in one year but the mutual fund version will be aimed at individuals who are on the cusp of retiring, where most are offered mutual funds or collective investment trusts if they are more sophisticated.

For its part, the SEC has not commented but, as Morris says, they didn’t get an instant ‘no’ or a call to discuss. “We take that as a positive sign. Our expectation was that we made some meaningful inroads and thoughtful comments in how we crafted our request for relief and we believe we will get our chance to have a series of conversations but we understand this is new.

“The important thing is what’s next if we can address these concerns what other concerns are there for the future. We feel there is an opportunity to answer these questions now.”

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