The growing ability to append an ETF share class to an existing mutual fund is gaining attention globally, according to JP Morgan’s May 2025 report The Rise of ETF Share Classes of Mutual Funds. The model offers asset managers a potential shortcut into the ETF space without needing to launch separate funds or convert existing ones entirely.
In the United States, interest in the structure surged after Vanguard’s patent on ETF share classes expired in 2023. Vanguard had been the sole user of the model under a 2000 SEC exemption, amassing over USD 2 trillion in assets across 70 ETFs. Since the patent expiry, 42 applications have been submitted to the SEC by other fund managers, though no approvals have been granted so far.
European regulators are also adjusting their stance. In 2024, the Central Bank of Ireland aligned with Luxembourg’s approach, allowing only the ETF share class to be designated as an ETF. This shift removed a major hurdle stemming from previous ESMA guidance, which had required the entire fund to be rebranded as an ETF.
Limits
While the structure is seen as a faster route to market, it comes with limits. Tax treatment is not guaranteed to match that of traditional ETFs, and operational complexity increases when combining listed and unlisted flows within a single fund. Differences in valuation timing, transparency, and trading requirements must also be considered.
JP Morgan concludes that ETF share classes may be a practical solution for some managers, but success depends on infrastructure, fund suitability, and regulatory developments in each market.
