A Missouri-based wealth manager is poised to join the small but growing list of firms who have flipped assets into exchange-traded funds to help investors slash their tax bills, prepping one of the largest launches of its kind.
Hill Investment Group is planning a February debut for the Longview Advantage ETF (ticker EBI), which will start trading with an estimated $500 million of assets. Those have been raised mostly from a long list of investors, each of whom is handing securities they already own to the fund in exchange for shares in the new pooled vehicle.
That mechanism effectively lets them offload appreciated investments without incurring capital-gains tax. It's a playbook seen a few times in the $10.6 trillion U.S. ETF industry, but EBI is among the first funds open to investors beyond its manager's existing client base.
The expected size of the launch is a measure of how much demand exists for such an offering, with many American investors itching to rebalance portfolios after years of runaway stock gains.
"Someone who's had a run-up in some individual security or ETF and they feel trapped — they can't do anything about it easily without paying a huge tax," Matt Hall, co-founder of HIG, said from St. Louis, Missouri. "To be able to get diversification and defer the taxes — for us, it's the best financial planning idea we're bringing to certain clients in 2025."
So-called 351 conversions, which are named after the section of the tax code that applies, take advantage of the fact that ETFs can flush out appreciated stocks without triggering a capital gains bill. The process allows an investor to keep cash invested but reorder their portfolio, with a payment to the Internal Revenue Service only due when they finally sell out altogether.
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HIG, which oversees about $1.1 billion, hails from a cohort of financial advisers that favor investing based on academic research. Under Matt Zenz, a portfolio manager formerly at Dimensional Fund Advisors, EBI will systematically pick stocks with lower valuations and higher profitability — characteristics that have been documented to predict long-term outperformance.
After a planned February 25 listing, the fund will take about a month to rebalance into its intended portfolio, Hall said. He estimated that HIG clients will account for roughly 40% of the ETF's seeded assets, with the rest coming from about 15 financial advisors or family offices who are each expected to contribute at least $15 million.
Cambria Investment Management's TAX fund is thought to have been the first ETF to execute a 351 conversion for an investor base beyond the manager's clients. It launched in December with about $27 million.
While the demand for such conversions is strong, the complexity of the whole process will slow the pipeline, according to Hall.
"The administrative lift and coordinating the logistics between other firms or even individual investors — that's going to be the sticking point for other people who go down this path," he said.
