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Guinness Atkinson Asia Pacific Dividend Builder and Dividend Builder Funds reorganized

edited May 22 in Fund Discussions
https://www.sec.gov/Archives/edgar/data/919160/000139834420011445/fp0054046_497.htm

497 1 fp0054046_497.htm

Guinness Atkinson Funds

Guinness Atkinson Asia Pacific Dividend Builder Fund (GAADX)
Guinness Atkinson Dividend Builder Fund (GAINX)

Supplement dated May 22, 2020 to the Prospectus and Statement of Additional Information dated May 1, 2020 and Summary Prospectus dated May 5, 2020

This supplement provides new and additional information beyond that contained in the Prospectus and Statement of Additional Information (“SAI”) and should be retained and read in conjunction with the Prospectus and SAI.

* * *

On May 14, 2020, the Board of Trustees of the Guinness Atkinson Funds (the “Trust”) approved the reorganizations of Guinness Atkinson Asia Pacific Dividend Builder Fund into SmartETFs Asia Pacific Dividend Builder ETF, and Guinness Atkinson Dividend Builder Fund into SmartETFs Dividend Builder ETF. There will be no change in investment objective, strategies or portfolio management.

A Prospectus/Information Statement with respect to the reorganizations will be mailed before the consummation of the reorganization to holders of each fund’s shares as of the record date.

Comments

  • edited May 23
    Why "too bad"? Isn't it only the "wrapper" that has changed - not the contents?
    On May 14, 2020, the Board of Trustees of the Guinness Atkinson Funds (the “Trust”) approved the reorganizations of ... Funds into SmartETFs ... There will be no change in investment objective, strategies or portfolio management.
    Also - would this be the "first" conversion of an existing mutual fund into an ETF?

    If so (unsure), wouldn't that be big news, with respect to setting a precedent?

    Re: SmartETFs

    https://www.smartetfs.com/invest/
    https://www.smartetfs.com/about-us/
  • You’re right. This is more interesting than I mistakenly thought, although I’m not sure this is the first time it’s happened.
  • Hi, guys.

    Yes, I agree. This is, or should be, big news.

    To Lewis: this is the first. The conversion has been in the works, with the active engagement of the SEC, for nearly a year.

    If this model works out, it makes it possible for virtually any actively managed fund to seamlessly convert itself to an ETF. The net effect would be the elimination of 60 to 80 basis points of structural expenses imposed by the unequal regulatory burdens. And the elimination of minimum investment requirements.

    We've been in conversation with the Guinness Atkinson folks for nearly a year as we watched the slow evolution of the process. I've had a draft article in readiness for nearly as long. We can't speak with them just now because of the SEC mandated "quiet period" though they were able to say that the conversion did not work out exactly as they had originally envisioned.

    More soon!
  • edited May 23
    [Did not see David's post above as I was constructing this one.]

    LewisBraham:

    Of course I am not sure, but I believe that it is (more or less) a first.

    Did a Google search that came up only with one story from 2008 [!]:
    Claymore Advisors announced that the shareholders of Claymore/Raymond James SB-1 Equity Fund (RYJ) have approved the [closed-end] fund’s reorganization into an ETF format.
    (Ignoring Vanguard's patented mutual fund/ETF structure.)

    These 2019 stories suggest that this could be a first.
      https://www.etf.com/sections/features-and-news/how-mutual-funds-convert-etfs

      https://www.bbh.com/en-us/insights/making-the-switch--turning-a-mutual-fund-into-an-exchange-traded-fund-38254

      https://www.thompsonhine.com/publications/converting-a-mutual-fund-to-an-etf-key-considerations
    The last (7-15-2019) from the Thompson Hine law firm, states:
    To date, no mutual fund has been converted into an ETF. Such a conversion raises regulatory and operational issues, none of which are insurmountable.
    So, think it is probably a first.

    (Will you let us know what you discover?)
  • edited May 23
    I’ve seen open end mutual funds convert to tradable closed-end ones— – Highland Global Allocation Fund (NYSE: HGLB)—before so I wonder how much of a difference there is here between a tradable ETF and a closed-end. I imagine one important difference would be the need for authorized participants to do the ETF redemptions on an institutional level.

    One of the interesting questions these conversions will answer is whether it’s the lack of an ETF structure that has really caused so many investors to abandon active management. I don’t think it is. To paraphrase James Carville: “It’s the fees, stupid.“ To the extent the ETF wrapper helps managers reduce costs, that will be good so long as those cost savings are passed on to fund investors. But otherwise, meh. I do think the Guinness fund was a good fund before and will remain one after in a new wrapper.
  • edited May 23
    The Dividend Builder ETF prospectus, as yet incomplete.

    My understanding is that the conversion was pursued in order to level the playing field by eliminating structural costs. The managers win if and only if the new wrapper carries dramatically lower fees than the original, and fees lower enough to win back the attention of the advisor community. So far, those haven't been published.

    Jim Atkinson, btw, once noted that this fund was vastly more popular in Europe than in the US. "Something about the underlying logic really connects with the German investor," he said.
  • One interesting cost comparison to make is between the Davis mutual funds and the actively managed Davis ETFs such as this: https://davisfunds.com/funds/global_fund/
    and this: https://davisetfs.com/etfs/worldwide
    The strategies aren't identical, but they have the same manager and similar strategies. The cost to the end shareholder dropped fom 0.98% to 0.63%. That would indicate that perhaps half the cost saving was passed on to shareholders. Interestingly though, the difference in strategy matters in this case a bit as the mutual fund holds more illiquid securities.
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