Elite Wall Street Firms Are Surrendering to $7 Trillion ETF Boom

Getting John Beatson to pick stocks for you used to require a cool $25 million or thereabouts. Thanks to the newest trend in money management, these days it’s more like $25.

That’s roughly the price of a share in the Bushido Capital US Equity ETF (ticker SMRI), an actively managed equity vehicle launched by Beatson’s firm Sepio Capital LP last month. It means pretty much anyone can tap him for his stock-picking skills, and even those who don’t invest can see every trade he makes in the ETF given its transparent design.

Sepio is among a small but growing group of elite Wall Street players who are slowly joining the march into exchange-traded funds. Along the way, they’re opening up access to strategies and expertise that for years were the sole preserve of big institutions, family offices and the like — all for a shot at the booming $7.2 trillion arena.

Yet going mass-market is not the primary goal, according to Beatson. The Sepio ETF has launched with around $200 million of existing assets converted from its separately managed accounts, a type of a private investment product commonly used by the wealthy to hold securities directly.

“First and foremost, we want to do this to benefit our current clients,” said the co-chief investment officer. “It’s on average pretty clear, at least with respect to US equities, what the most advantageous structure is for taxable dollars.”

The aim is to exploit the famous tax efficiency of the ETF wrapper, which means funds rarely incur capital gains tax, instead transferring the burden to investors when they exit. That keeps more cash invested for longer, helping funds to earn more.

About $75 billion now sit in ETFs converted from mutual funds, Bloomberg Intelligence data show, following the first ever switch in 2021. They’re mostly chasing that tax advantage, or tapping rampant investor demand for ETFs, which have absorbed hundreds of billions every year as stock mutual funds lose similar amounts.

But the conversion of SMAs like Beatson’s is a newer phenomenon.