This Wasn’t Suppose To Happen: ETF Converts to Mutual Fund

March 31, 2014 by  
Filed under Commentary, ETF Closings

Pax World launched the Pax MSCI EAFE ESG Index ETF (EAPS) in January 2011, and March 21, 2014 was its last of trading.  When ETFs close, the asset base is typically very small and very few shareholders are affected.  In the case of EAPS, assets were north of $64 million.  Additionally, Pax World decided not to liquidate this ETF after closing and delisting.  Instead, the ETF is converting into an old-fashioned traditional open-ended mutual fund.  Probably not something investors buying an ETF would expect.

Those of you owning shares of the Pax MSCI EAFE ESG Index ETF (EAPS) ten days ago will own Institutional Class shares of the Pax World International ESG Index Fund (PXNIX) at the end of the day today (March 31, 2014), as that is when the newly formed mutual fund begins life.  EAPS shareholders have been in suspended animation during the interim, but the fund should have continued to track its underlying index.  The new mutual fund prospectus states the expense ratio will remain the same at 0.55% after the conversion.

Pax World is calling it a “merger”, and affected shareholders can read more in the merger FAQs.  Pax previously closed their other ETF, and the removal of EAPS means that ESGShares is no longer a product line and Pax World is no longer an ETF sponsor.

In past years, there was much talk and speculation regarding the possibility of mutual funds converting to ETFs and the associated increase in ETF assets.  To my knowledge, no one ever mentioned that it would go the other way.  Converting ETFs into mutual funds was not supposed to happen, but now it has.

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

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