Finance

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

Published

2 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: AAL, AVGO, JPM

Published

13 hours ago

December 24, 2024

Business Finance News

Finance

Biggest banks planning to sue the Federal Reserve over annual stress tests

Published

15 hours ago

December 24, 2024

Business Finance News

A general view of the Federal Reserve Building in Washington, United States.

Samuel Corum | Anadolu Agency | Getty Images

The biggest banks are planning to sue the Federal Reserve over the annual bank stress tests, according to a person familiar with the matter. A lawsuit is expected this week and could come as soon as Tuesday morning, the person said.

The Fed’s stress test is an annual ritual that forces banks to maintain adequate cushions for bad loans and dictates the size of share repurchases and dividends.

After the market close on Monday, the Federal Reserve announced in a statement that it is looking to make changes to the bank stress tests and will be seeking public comment on what it calls “significant changes to improve the transparency of its bank stress tests and to reduce the volatility of resulting capital buffer requirements.”

The Fed said it made the determination to change the tests because of “the evolving legal landscape,” pointing to changes in administrative laws in recent years. It didn’t outline any specific changes to the framework of the annual stress tests.

While the big banks will likely view the changes as a win, it may be too little too late.

Also, the changes may not go far enough to satisfy the banks’ concerns about onerous capital requirements. “These proposed changes are not designed to materially affect overall capital requirements, according to the Fed.

The CEO of BPI (Bank Policy Institute), Greg Baer, which represents big banks like JPMorgan, Citigroup and Goldman Sachs, welcomed the Fed announcement, saying in a statement “The Board’s announcement today is a first step towards transparency and accountability.”

However, Baer also hinted at further action: “We are reviewing it closely and considering additional options to ensure timely reforms that are both good law and good policy.”

Groups like the BPI and the American Bankers Association have raised concerns about the stress test process in the past, claiming that it is opaque, and has resulted in higher capital rules that hurt bank lending and economic growth.

In July, the groups accused the Fed of being in violation of the Administrative Procedure Act, because it didn’t seek public comment on its stress scenarios and kept supervisory models secret.

CNBC’s Hugh Son contributed to this report.