VettaFi Voices On: Choosing Your Wrapper

Greetings, VettaFi Voices! Now seems like a good time to talk about wrappers and which ones are best for different situations. How do you decide whether to use an ETF, a mutual fund, or something else?

Todd Rosenbluth, VettaFi director of research: Now is a very good time to do so, since so many active managers are bringing ETF versions of established mutual funds to market. They’re giving advisors and end clients a choice. A few prominent ones with a longish ETF record that come to mind are T. Rowe Price, with the T. Rowe Price Blue Chip Growth ETF (TCHP) and Fidelity with the Fidelity Blue Chip Growth ETF (FBCG). We’ll have the manager of FBCG appearing next week at the Equity Symposium to answer questions.

However, this year we saw Franklin launch the Franklin Income Focus ETF (INCM), an ETF version of a nearly 75-year-old and extremely popular mutual fund. And JPMorgan is soon to launch an ETF version of its JPMorgan Hedged Equity Fund. The same team that runs this also runs the largest actively managed equity ETF, the JPMorgan Equity Premium Income ETF (JEPI).

The holdings of the ETF and mutual fund with a similar name have nearly identical portfolios. Minor changes are made to ensure there’s adequate liquidity for the ETF. But the choice is largely whether or not you want the tax efficiency benefits of an ETF, and are you comfortable with trading in a market.

I’m sure my colleagues will dive into this, but an ETF trades like a stock does, even if it holds bonds like INCM does. So there’s a bid/ask spread, and you need to put in an order to buy or sell sometime during trading hours. Hopefully using limit and not market orders.