(Bloomberg) — After launching the world's first mutual fund 100 years ago, MFS Investment Management is poised to make its debut in the ETF market.
In the strongest sign yet that low-cost trading vehicles are taking over the investment world, the firm has applied to create five actively managed exchange-traded funds that include stocks and bonds, according to Monday. folders with the Securities Commission.
Their arrival will be a historic moment in asset management. Until now, Boston, Massachusetts-based MFS was among the few holdings in the $8.6 trillion ETF market. The firm is famously home to Massachusetts Investors Trust, the first open-end mutual fund launched in 1924.
Mutual funds have squandered market share to their newer, more versatile competitors for years in a tectonic displacement of the investment landscape that has forced even the oldest executives to embrace the new wrapper. Both Capital Group, Neuberger Berman Group LLC and Grantham Mayo Van Otterloo are among those that have entered the world of ETFs in the past three years.
With about $630 billion under management at the end of March, MFS is one of the last major firms without an ETF offering.
“Every investment manager needs an ETF solution at this point because the rate of growth is undeniable,” said Todd Sohn, ETF analyst at Strategas Securities. “Mutual funds will have a role for now, but ETFs remain the present and the future for many investment managers out there.”
Mutual funds spent about $656 billion in 2023, while ETFs totaled $578 billion, according to Investment Company Institute data compiled by Bloomberg. The trend has continued in 2024, with $65 billion flowing from mutual funds, while ETFs have absorbed more than $230 billion year-to-date.
MFS says it continues to see long-term demand for its existing vehicles, but that the move is a response to interest in the ETF format.
“We believe that offering active ETFs will complement our existing vehicle offerings and provide investors with greater choice,” a spokesperson said by email.
The firm submitted filings for the MFS Active Core Plus Bond ETF, the MFS Active Growth ETF, the MFS Active Intermediate Muni Bond ETF, the MFS Active International ETF and the MFS Active Value ETF. Fees and indicators for funds are not yet listed.
While active ETFs have flourished in popularity over the past two years—they've attracted an estimated $73 billion in 2024 alone—and companies like Capital Group have successfully introduced “building block”-type products, planned funds would launch in well-defined corners of the industry. Sohn thinks attracting new assets could be tricky given the crowded nature of the U.S. market, where almost 3,500 ETFs now trade.
“I'm assuming they have a list of clients who are interested in those strategies through ETF form and will invest in them,” Sohn said. “But getting outside money can be challenging given the incredible saturation.”