One Portfolio, Two Wrappers: How Do ETF Share Classes Work?

ETF share classes are a new and meaningful evolution in fund structure. The concept is simple: one mutual fund portfolio, run as a single strategy, accessible through share classes as either a mutual fund or an ETF. Same holdings, same gross performance, two ways in.

The structure became more broadly available in late 2025 and into 2026, when the SEC began granting exemptive relief to a select number of asset managers, including Allspring Global Investments.

We sat down with Molly Landes, head of ETF Capital Markets at Allspring, to walk through what changes, what doesn’t, and how this important innovation in fund design is reshaping mutual fund and ETF investing.

Below are highlights of a lively conversation we had with Molly.

Q: What is an ETF share class, and how does it differ from a standalone ETF?

A: At its core, an ETF share class offers another way to access a mutual fund’s strategy, now in the form of an ETF. The ETF class and the traditional mutual fund classes all leverage the same pooled portfolio, follow the same investment strategy, and share the same gross performance. The difference is in how investors access that strategy. The ETF share class trades intraday on an exchange and uses familiar ETF mechanics like in-kind creation and redemption, while mutual fund shares typically transact in cash at end-of-the-day net asset value (NAV). Coexistence is what makes the ETF share class structure unique — integrating elements of mutual funds and ETFs within a single portfolio, providing advisors and investors with greater choice.

Q: Where does the tax efficiency come from and who actually benefits?

A: This is potentially a significant benefit for investors across share classes. By adding an ETF share class, the shared portfolio gains access to the ETF’s creation and redemption process. That means securities can be exchanged in-kind, which may help reduce the realization of capital gains inside the portfolio. When in-kind activity is used to meet ETF redemptions or rebalance holdings, it can benefit the portfolio in two primary ways. First, removing lower-cost-basis securities can raise the portfolio’s overall cost basis, which may help reduce realized capital gains and associated taxes. Second, the ability to transfer securities in-kind can lower the need to sell holdings in the portfolio, potentially limiting taxable events. Because portfolio activity and costs are shared across all classes, these potential benefits aren’t limited to ETF investors alone. Capital gain distributions can still occur, depending on market conditions and the strategy, but over time, the structure may help significantly reduce both their frequency and magnitude.

Q: If the strategy and holdings are identical, where do costs and performance actually diverge?

A: In a mutual fund that includes an ETF share class, all classes follow the same investment strategy and hold assets in a common pool, so they share the same gross performance. Where differences can show up is at the net level, based primarily on fees and transaction costs. For example, ETF investors have the added opportunity to trade their shares intraday; however, they may encounter bid/ask spreads or brokerage commissions when trading. Mutual funds, on the other hand, do not trade intraday so investors in mutual fund shares are not subjected to these costs. That said, no matter what the share class, underlying portfolio transactions are shared across the structure, and in-kind activity through the ETF share class may reduce reliance on market trading and internal trading costs. These “across the board” cost and tax efficiencies should lead to better investor outcomes, no matter what the wrapper. 

Q: Can investors move between mutual fund and ETF share classes without triggering taxes?

A: This is a common question. Investors often want to know whether they can exchange from a mutual fund share class into an ETF share class within the same fund without triggering a taxable event. While in a general sense the answer is yes, the ability to exchange depends on operational capabilities across custodians, broker-dealers, and intermediary platforms. It’s also worth considering whether an exchange is necessary. For example, if an investor is contemplating a switch solely for tax purposes, remaining invested in the mutual fund share class may make sense, as tax efficiency benefits are shared across classes. However, if intraday trading flexibility is a priority, moving to the ETF share class may be more appropriate.

Q: Which strategies are the strongest candidates for this structure — and which aren’t?

A: ETF share classes aren’t a one-size-fits-all solution. Some strategies may benefit more than others. Domestic equity strategies often appear to be strong candidates because they’re fully eligible for in-kind transactions. Certain international equity and fixed income strategies may also benefit, depending on the market structure and underlying securities. On the other hand, strategies that hold securities that aren’t eligible for in-kind transfers may see more limited tax benefits. Other factors — such as fund capacity, investor demand, operational complexity, and commercial viability — also come into play. While tax efficiency is an important consideration, it’s not the only one, and each strategy needs to be evaluated on a case-by-case basis with realistic expectations.

What is Allspring’s plan for offering ETF share classes?

A: We received exemptive relief from the U.S. Securities and Exchange Commission (SEC) in January 2026, which allows us to add ETF share classes to our existing mutual fund lineup. We’ve been working closely with key stakeholders to identify which mutual funds are the most appropriate candidates for this structure. Ultimately, when we offer mutual funds with ETF share classes, advisors and investors will be able to access some of our more popular, established investment strategies — with the added option of choosing between a mutual fund or an ETF structure. We’re excited about the opportunity to deliver our expansive investment capabilities in this new share class structure. For the latest information on timing and specific fund availability, we encourage financial intermediaries and investors to connect with their Allspring ETF sales professional and follow Allspring on LinkedIn.

Interested in learning more? Check out Allspring’s What You Should Know About ETF Share Classes.

Disclosure

*Carefully consider a fund’s investment objectives, risks, charges, and expenses before investing. For a current prospectus and, if available, a summary prospectus, containing this and other information, visit allspringglobal.com. Read it carefully before investing.

It is possible that an active trading market for ETF shares will not develop, which may hurt your ability to buy or sell shares, particularly in times of market stress. Shares may trade at a premium or discount to their net asset value (NAV) in the secondary market. These variations may be greater when markets are volatile or subject to unusual conditions. There can be no assurance that active trading markets for the shares will develop or be maintained by market makers or authorized participants. Shares of the ETFs are not redeemable with the ETF other than in creation unit aggregations. Instead, investors must buy or sell the ETF shares in the secondary market at market price (not NAV) through a broker-dealer. In doing so, the investor may incur brokerage commissions and may pay more than NAV when buying and may receive less than NAV when selling. Investing involves risk, including the possible loss of principal. Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. Changes in market conditions and government policies may lead to periods of heightened volatility in the bond market and reduced liquidity for certain bonds held by the fund. In general, when interest rates rise, bond values fall and investors may lose principal value. Interest rate changes and their impact on the fund and its share price can be sudden and unpredictable.  Some funds, including non-diversified funds and funds investing in foreign investments, high-yield bonds, smaller company stocks, and/or more volatile segments of the economy, entail additional risk and may not be appropriate for all investors. Consult the fund’s prospectus for additional information on these and other risks.

Allspring ETFs are not available for distribution outside the United States.

Allspring Global Investments does not provide accounting, legal, or tax advice or investment recommendations. Any tax or legal information in this article is merely a summary of our understanding and interpretations of some of the current income tax regulations and is not exhaustive. Investors should consult their tax advisor or legal counsel for advice and information concerning their particular situation. 

SEC exemptive relief for ETF share classes is a U.S. Securities and Exchange Commission (SEC) order permitting mutual funds to add an exchange-traded fund (ETF) share class to their existing structure, allowing both to operate within one portfolio.

Allspring Global Investments^TM is the trade name for the asset management firms of Allspring Global Investments Holdings, LLC, a holding company indirectly owned by certain private funds of GTCR LLC and Reverence Capital Partners, L.P. These firms include but are not limited to Allspring Global Investments, LLC, and Allspring Funds Management, LLC. Certain products managed by Allspring entities are distributed by Allspring Funds Distributor, LLC (a broker-dealer and Member FINRA/SIPC).

This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind — including a recommendation for any specific investment, strategy, or plan.

ALL-05152026-7381lacz

© 2026 Allspring Global Investments Holdings, LLC. All rights reserved.