Financial consulting company Hill Investment Group is leaving nothing to chance as he prepares to launch his first exchange-traded fund.
Registered investment advisor based in St. Louis, which has filed with the Securities and Exchange Commission to offer Longview Advantage ETF (EBI), raises pre-launch seed capital by offering investors a way to reallocate appreciated investments into a new ETF.
The capital raising, which is expected to reach $500 million by the ETF’s debut in February, employs Article 351 of the Code of the Tax Administration. In essence, investors holding securities with a cheap basis and built-in capital gains can shift the value of those investments into the new ETF without triggering a taxable event.
A transfer in kind does not remove built-in capital gains; instead, it defers them to be paid out when the investor eventually sells the ETF.
Matt Hall, co-founder and CEO of Hill Investment Group, said the capital-raising strategy is being marketed to others consulting companies, especially those serving a few clients in the technology sector who have portfolios full of stock options that can have plenty of built-in capital gains.
“We think the 351 exchange is a super helpful way to help people,” Hall said. “My prediction is that you will hear more about this strategy as other firms try to coordinate with advisory firms.”
The new ETF will be an actively managed strategy compared to Russell 3000 Indexwhich Hall described as a combination of passive and active.
“We call it passive-aggressive,” he said. “Our fund will have dynamic exposure to the value factor with a higher value slope at times when the value range is wider, which will be a more active component.”
The EBI ETF will launch with an expense ratio of 25 basis points, but Hall said the fee will decrease as the assets in the fund grow.
The fund will be managed Matt Zenzwho previously oversaw assets at Dimensional Fund Advisors.
