TCW backtracks on ETF conversion plan

TCW has backtracked on its decision to convert an investment-grade credit mutual fund into an ETF, opting to switch over another one of its bond mutual funds instead, regulatory filings show.

In April, the manager filed to refashion the now-$28mn TCW MetWest Investment Grade Credit Fund into an ETF. However, last week, the fund’s board voted to reverse its decision, determining that “proceeding with the reorganisation [was] no longer in the best interest of the fund and its shareholders,” according to a filing.

A spokesperson for the fund shop said that the about-face was partly fuelled by investor demand. Instead, it has decided to convert the $5mn TCW MetWest Corporate Bond Fund into an ETF, a separate filing shows.

“We see growing investor demand for corporate credit ETFs and determined that the TCW MetWest Corporate Bond Fund would be of greater interest to investors as an active ETF focused on the investment-grade corporate bond sector,” the spokesperson said.

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The corporate bond mutual fund recorded net outflows of more than $1mn for the year that ended August 31, while the investment-grade credit mutual fund netted inflows of nearly $15mn, according to data from Morningstar Direct.

The corporate bond fund is set to be remade as an ETF on or around November 4, the filing said.

The mutual fund is offered as M shares and I shares, a prospectus shows. M shares are available for individual retirement accounts and automatic investment plans and cost 75 basis points. I shares, meanwhile, cost just 50 bps.

Roughly a week before the mutual fund is converted to an ETF, it will stop accepting purchase orders for its class M shares, and those shares will be converted to I shares, the filing shows.

The filing did not say how much the fund will cost when it becomes an ETF.

In April, TCW filed to launch two new ETFs and convert four of its mutual funds into ETFs. The only one that has not happened is the investment-grade credit fund.

Industry-wide, 90 mutual funds have been converted into ETFs, Morningstar Direct data shows.

TCW also sub-advises ETFs for First Trust, said Brian Moriarty, a fixed-income strategist at Morningstar.

The firm appears to be going through its list of small mutual funds that “so far haven’t had a lot of traction” and converting them into ETFs, said Moriarty.

The active corporate bond ETF market is also far less competitive than the core plus bond space, Moriarty noted, and that may have factored into the firm’s decision to flip-flop on the fund conversions.

TCW has a line-up of six ETFs that together have $1.5bn in assets, its website shows.

The six strategies recorded net outflows of $36mn for the year that ended August 31, according to Morningstar Direct. By comparison, its $58bn mutual fund line-up bled nearly $23bn during the same period.

Meanwhile, the firm on Thursday also filed to liquidate three mutual funds: the $30mn TCW MetWest Alphatrak 500 Fund, $10mn TCW Enhanced Commodity Strategy Fund and $5mn Short Term Bond Fund.

“As part of our ongoing review of our fund offerings, we made the decision to liquidate these funds because they have not gained sufficient traction with investors,” the spokesperson wrote in an email.

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