TBIL Rang the Opening Bell on Dual Share Classes. What Comes Next?

The dual share class race is on, and F/m is in pole position.

The long-awaited dual share class structure made its official debut last week when Texas-based F/m Investments announced that its US Treasury 3-Month Bill ETF (TBIL) will offer both ETF and mutual fund share classes. The announcement marks the first time a firm has successfully launched the dual share class structure, an idea that has percolated across the industry since Vanguard’s patent on the model expired in 2023. The move is the first step toward what many in the industry consider the future of portfolio construction, particularly as mutual funds struggle to keep up with ETFs’ popularity. It could also allow strategies in exchange-traded funds to trade in 401(k) accounts, which are currently dominated by mutual funds.

“When’s the last time anyone covered a really cool mutual fund that just launched? Probably 20 years ago,” said Alex Morris, CEO of F/m Investments. “All of the innovation is happening in the ETF space.”

One Portfolio, Two Doors

Dual share classes give investors multiple ways to access the same strategy. In the case of F/m’s flagship product, buyers can now choose between the traditional ETF share class, which trades on an exchange, and a new mutual fund-style option designed for direct purchases. The fund may also now become available to investors in retirement plans. In theory, an advisor can recommend TBIL’s mutual fund equivalent, operating under the ticker TBFMX, in their 401(k) or individual retirement account. “You’ll see us start working with the recordkeepers to bring TBIL to [retirement accounts],” Morris said. “A 401(k) program could ring us up today and make it available to their investors tonight.” Investors can also buy multiple shares of the fund for both their brokerage and retirement accounts.

Although F/m is the first to bring the structure to market, others are lined up to join the party:

• Dimensional Fund Advisors, the first to have its dual share class proposal greenlit by the Securities and Exchange Commission, was widely considered the blueprint for agency approval.
• Other big names in the industry — including BlackRock, Fidelity and State Street — have also filed.

Quick Draw. The reason F/m beat Dimensional to the punch, Morris said, is because the former was giving an ETF a mutual fund share class, while the latter is trying it the other way around. “DFA was very aggressive, and they were ahead of us in the queue for approval, and we all benefited from that,” he said, adding that F/m’s strategy allowed for a methodical rollout and backtesting.

Morris said that once an ETF share class of a mutual fund is launched, there’s nothing stopping massive price fluctuations, whereas F/m is limiting TBFMX’s availability at the start. “DFA’s interest in an ETF share class is like dropping everyone into the boiling cauldron, because once it’s in the ETF format, you can’t stop it.”