Finance

KKM Financial’s Essential 40 stock fund is now an ETF

Published

8 months ago

October 21, 2024

Business Finance News

The Nasdaq MarketSite in New York, US, on Monday, Sept. 16, 2024.

Yuki Iwamura | Bloomberg | Getty Images

KKM Financial has converted its Essential 40 mutual fund into an ETF, joining the growing shift by asset managers to a more tax-efficient fund model.

ETFs make it easier for investors and financial advisors with taxable accounts to choose when to create capital gains or losses. This differs from mutual funds, which can sometimes hit their investors with an unwanted tax bill due to withdrawals or portfolio changes.

“When you look at the tax efficiency of an ETF compared to a mutual fund, it is much more advantageous,” said Jeff Kilburg, founder and CEO of KKM and a CNBC contributor. “A lot of the wealth advisors that I work with really have issues with the capital gain distribution typical to a mutual fund.”

Many asset managers have been converting their mutual funds to ETFs in recent years, due in part to a 2019 SEC rule change that made it easier to run active investment strategies within an ETF. The number of active equity mutual funds has fallen to its lowest level in 24 years, according to Strategas.

More broadly, many asset managers are pushing the SEC to allow ETFs to be added as a separate share class within existing mutual funds.

The newly-converted KKM fund will trade on the Nasdaq under the ticker ESN. The goal of the Essential 40 is to allow investors to “buy what you use” in one equal-weighted fund, according to Kilburg. Its holdings include JPMorgan Chase, Amazon, Waste Management and Eli Lilly, according to FactSet.

“We believe without these companies, the U.S. economy would be hindered, or would be in trouble,” he said.

The old mutual fund version of the Essential 40 had a three star rating from Morningstar. Its best relative performance in recent years came in 2022, when it declined less than 11% — much better than the category average of about 17%, according to Morningstar.

Equal-weighted funds can often outperform market-cap weighted indexes during downturns. They’ve also been a popular strategy this year, due in part to concerns that the market was too reliant on the so-called Magnificent 7 stocks. The Invesco S&P 500 Equal Weight ETF (RSP) has brought in more than $14 billion in new investor funds this year, according to FactSet.

In 2024, the KKM fund was up about 16% year to date before its conversion, with roughly $70 million in assets, according to FactSet.

The ETF will have a net expense ratio of 0.70%, equal to that of the old mutual fund.

Finance

Stocks making the biggest moves midday: WOOF, TSLA, CRCL, LULU

Published

1 day ago

June 6, 2025

Business Finance News

Finance

Swiss government proposes tough new capital rules in major blow to UBS

Published

1 day ago

June 6, 2025

Business Finance News

A sign in German that reads “part of the UBS group” in Basel on May 5, 2025.

Fabrice Coffrini | AFP | Getty Images

The Swiss government on Friday proposed strict new capital rules that would require banking giant UBS to hold an additional $26 billion in core capital, following its 2023 takeover of stricken rival Credit Suisse.

The measures would also mean that UBS will need to fully capitalize its foreign units and carry out fewer share buybacks.

“The rise in the going-concern requirement needs to be met with up to USD 26 billion of CET1 capital, to allow the AT1 bond holdings to be reduced by around USD 8 billion,” the government said in a Friday statement, referring to UBS’ holding of Additional Tier 1 (AT1) bonds.

The Swiss National Bank said it supported the measures from the government as they will “significantly strengthen” UBS’ resilience.

“As well as reducing the likelihood of a large systemically important bank such as UBS getting into financial distress, this measure also increases a bank’s room for manoeuvre to stabilise itself in a crisis through its own efforts. This makes it less likely that UBS has to be bailed out by the government in the event of a crisis,” SNB said in a Friday statement.

‘Too big to fail’

UBS has been battling the specter of tighter capital rules since acquiring the country’s second-largest bank at a cut-price following years of strategic errors, mismanagement and scandals at Credit Suisse.

The shock demise of the banking giant also brought Swiss financial regulator FINMA under fire for its perceived scarce supervision of the bank and the ultimate timing of its intervention.

Swiss regulators argue that UBS must have stronger capital requirements to safeguard the national economy and financial system, given the bank’s balance topped $1.7 trillion in 2023, roughly double the projected Swiss economic output of last year. UBS insists it is not “too big to fail” and that the additional capital requirements — set to drain its cash liquidity — will impact the bank’s competitiveness.

At the heart of the standoff are pressing concerns over UBS’ ability to buffer any prospective losses at its foreign units, where it has, until now, had the duty to back 60% of capital with capital at the parent bank.

Higher capital requirements can whittle down a bank’s balance sheet and credit supply by bolstering a lender’s funding costs and choking off their willingness to lend — as well as waning their appetite for risk. For shareholders, of note will be the potential impact on discretionary funds available for distribution, including dividends, share buybacks and bonus payments.

“While winding down Credit Suisse’s legacy businesses should free up capital and reduce costs for UBS, much of these gains could be absorbed by stricter regulatory demands,” Johann Scholtz, senior equity analyst at Morningstar, said in a note preceding the FINMA announcement.

“Such measures may place UBS’s capital requirements well above those faced by rivals in the United States, putting pressure on returns and reducing prospects for narrowing its long-term valuation gap. Even its long-standing premium rating relative to the European banking sector has recently evaporated.”