MFS, home of first-ever mutual fund, jumps into ETFs

MFS Investment Management plans to launch its first exchange traded funds as early as next year, the company has confirmed, bringing the largest holdout mutual fund manager in the US into the ETF market.

The move is particularly notable, given that the Boston-based house created the world’s first mutual fund, the Massachusetts Investors Trust, in 1924.

“These ETFs will provide enhanced vehicle choice for clients to access the long-term value MFS creates,” a spokesperson wrote in an email, noting that the ETFs will be transparent and actively managed.

“MFS anticipates having ETFs in the market in the second half of 2024 or early 2025,” he said.

MFS is the largest US mutual fund complex that does not offer ETFs, Morningstar Direct data indicates. Capital Group, home to the third-largest US mutual fund line, launched its first ETFs in February 2022.

Dimensional Fund Advisors and T Rowe Price, also among the 10 largest US mutual fund shops, both entered the ETF space in 2020.

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The Boston-based house is the ninth-largest US mutual fund provider, with $308bn in such products as of the end of September, according to Morningstar data. The mutual funds recorded $10.4bn in net outflows during the year to September.

“Mutual funds, retail separately managed accounts and collective investment trusts all remain a key focus for MFS and our clients,” the spokesperson said. “ETFs will complement these vehicles.”

The ETFs will not be a “standalone business for MFS,” he said, “and the firm’s ETF effort will be integrated into its existing investment and distribution capabilities”.

MFS is hiring for three ETF-related roles, its careers site shows: a head of ETF capital markets, an investment product specialist for ETFs and a compliance lead specialist with prior experience with ETFs.

Overall, US ETFs had $7.16tn in assets as of September 30, according to Morningstar. Investors pumped $519bn into those products during the year to September including $107bn into actively managed ETFs.

US-domiciled mutual funds, meanwhile, had $17.1tn in combined assets as of the end of September, having suffered net outflows of $656bn during the year ended that date, according to Morningstar.

Carol Geremia, president and head of global distribution at MFS, said in September that the firm was “absolutely looking” at launching ETFs.

“Our average turnover is so low in our portfolios, so running off to have active ETFs to get tax efficiency is not necessarily something we need at this point,” Geremia said during a fireside chat at the Financial Times’ Future of Asset Management conference. She said MFS would enter the ETF space if there were high enough investor demand.

Across the US market, actively managed mutual funds bled $713bn during the year ended September 30, while active ETFs recorded net inflows of $107bn during the same period, Morningstar data shows.

In recent years, active ETF rollouts have outpaced launches for passive ETFs, active mutual funds and passive mutual funds, a recent ISS Market Intelligence survey found.

ISS projected that active ETFs’ revenue will rise at a 16.5 per cent annualised rate from 2024 to 2028, outstripping its 11.1 per cent forecast for passive ETFs, 9.5 per cent for index mutual funds and 4.9 per cent for active mutual funds.

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