It’s spring in the northern hemisphere, which means the birds are singing, the bees are buzzing and the first ETF share class of an active mutual fund has emerged from its cocoon.

Dimensional Fund Advisors has become the first company to bring an ETF share class to market under new exemptions granted by the Securities and Exchange Commission, giving the treatment to its first mutual fund, the US Micro Cap Portfolio, which launched in 1981. But choosing the company’s original fund for a first-ever ETF share class isn’t merely symbolic, said Joel Schneider, Dimensional’s deputy head of portfolio management for North America.

“It’s extremely relevant right now. This fund was actually designed for institutional investors who were concerned that they had too much concentration in US large caps,” he said. “That was 45 years ago, and history repeats itself.”

One More Time

Dimensional has broad plans to add ETF share classes of its mutual funds, as well as mutual fund shares of ETFs. Like other asset managers, Dimensional for years has had similar strategies in each category. Whether the firm will add share classes to such funds and scrap the separate ETF or mutual fund is one of the questions it’s grappling with, Schneider said. “It’s too early to say what we’ll do,” he said. “But we will take a big picture approach to get as much benefit from these structures for the end client as possible.” There are benefits both ways, as mutual fund shareholders can get better transaction costs and tax efficiency from an added ETF share class, and ETF shareholders could have more efficient rebalancing with mutual fund cash flows, the company said in an announcement.

In the meantime, it’s likely that Dimensional will prioritize the dual-share-class treatment for mutual funds that don’t already have a corresponding ETF, and vice versa, Schneider said. It recently filed for 13 US equity fund ETF share classes with the SEC, and it is also preparing some mutual fund share classes of its ETFs. Though it is the first to offer an ETF share class of an actively managed mutual fund, it’s not the first to dabble in dual share classes:

• Vanguard for years had a patent on dual share classes and until recently was the only firm to offer them, though that was limited to passively managed strategies.
• F/m Investments last month became the first to add a mutual fund share class to an existing ETF, its US Treasury 3 Month Bill ETF (TBIL).
• Many other asset managers have won the regulatory greenlight to add dual share classes, though rollouts are expected to happen gradually, as not all companies have capabilities spanning mutual funds and ETFs.

All the Small Things: The nearly $7 billion US Micro Cap Portfolio has a 1% overlap with the S&P 500, which can make it appealing for investors looking to diversify beyond US large cap stocks, Schneider said. The fund has a performance history of returning nearly 1.5% more annually than its benchmark, but the tax efficiency is also a draw for ETF investors, he said. The tax cost of the fund, or the pretax return minus post-tax return, was 29 basis points in 2024, he said. “That’s a big deal,” he said. “It’s not just about the gains, it’s about the nature of income that the funds are giving out.”

Look who decided to show up.

Nearly two decades after some of its main competitors launched junk bond index exchange-trade funds, Vanguard is finally doing the same, according to a recent SEC filing. The US High-Yield Corporate Bond Index ETF (VCHY), expected to launch in June, will track Bloomberg’s US High Yield $250MM 2% Issuer Capped Index.

Both the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and State Street’s SPDR Bloomberg High Yield Bond ETF (JNK) debuted in 2007, but an asset manager as big as Vanguard ($12 trillion in AUM) has the luxury of delaying fund launches and not really suffering any consequences. “With ETFs, this has been [Vanguard’s] standard practice: Be late to the game and take market share through lower costs,” said Jeff DeMaso, editor of The Independent Vanguard Advisor. “Are they usually two decades late to something as straightforward as the high-yield bond market? No.”

HYG and JNK have expense ratios of 0.49% and 0.40%, respectively. DeMaso expects Vanguard’s new fund to charge significantly less since its High-Yield Active ETF (VGHY), which also focuses on the bond market and launched last year, has a management fee of just 0.22%.

Covering All the Bases

The high-yield bond market has done quite well these past few years:

• In 2025, it posted a third consecutive year of strong performance with a total return of 8.62%, according to Bloomberg.
• That followed 2023 and 2024 returns of 8.19% and 13.44% respectively.

At the same time, actively managed bond ETFs tend to outperform passive funds over periods of 10 to 15 years, according to Dan Sotiroff, senior manager research analyst for Morningstar. “When you look at the high-yield bond market, it hasn’t been the most attractive market to launch an index fund,” he told ETF Upside. “If you’re a reasonably good active manager, there’s a decent chance you can outperform an index after fees.”

Watch the Gap: It likely wasn’t market conditions that prompted Vanguard to add the fund, but rather gaps in its product lineup, Sotiroff said. “Fixed income has been a big initiative for them,” he said, noting that Vanguard launched 15 funds last year, the majority of which invested in fixed income. “That’s a huge year in terms of sheer numbers.”

Sometimes it’s nice to spread out.

Case in point: Equal-weight funds are having a bit of a moment. By allocating assets evenly, they avoid high concentrations in a handful of stocks. This year, that has helped a few such funds temper the magnitude of losses that traditional large cap index funds have seen. Invesco’s S&P 500 Equal Weight ETF (RSP), for example, has returned -1.23%, compared with -5.13% for the S&P 500 Index. That firm last week added another fund to its equal-weight suite: the Invesco QQQ Equal Weight ETF (QEW), which tracks the Nasdaq 100.

Although the firm has offered the strategy in funds domiciled elsewhere, “the opportunity had never arisen for us to launch a product here in the US,” said Paul Schroeder, QQQ product strategist at Invesco. “It happened to be coincidental, where equal weighted [products] performed very well this year … It’s a pretty timely launch.”

Everyone Gets a Percent

With 100 constituent stocks, each gets a 1% allocation in QEW. That can mean a higher frequency of trading to rebalance the portfolio than with market-cap weighted funds, although equal-weight funds can, as shown by their year’s returns, outperform cap-weighted indexes. While the Nasdaq 100 is down about 5% so far in 2026, the Nasdaq Equal Weight Index is down about 3.6%. “You’ve seen megacap growth taking a little bit of a breather,” Schroeder said. “We’ve seen smaller companies outperforming so far year to date. You see value performing really well.”

Equal-weight funds have done slightly better than indexes recently:

• The iShares S&P 500 3% Capped ETF (TOPC), which launched last year and has a maximum allocation to the biggest constituent stocks of 3% each, has returned -3.8% year to date, compared with the S&P 500’s -5%.
• Invesco’s S&P 500 Equal Weight Technology ETF (RSPT) has been nearly flat, while the S&P 500 Information Technology index is down about 8.5%. Invesco’s S&P 500 Equal Weight Energy ETF (RSPG) is up 31%, just ahead of the S&P 500 Energy’s 29% gain.
• Meanwhile, Invesco’s Russell 1000 Equal Weight ETF (EQAL) is up 1%, compared with -5% for the Russell 1000.

Small is Beautiful: “Equal weighting introduces a tilt towards mid and smaller cap companies and tends to outperform when small caps are doing well,” said Aniket Ullal, head of ETF research and analytics at CFRA Research. “An equal weighted QQQ would be a good choice for investors who want to stay invested in a tech-heavy ETF that holds all of the Mag 7, but is not too heavily weighted towards mega caps.”