Hill Investment Group, a prominent financial advisory firm based in St. Louis, is making waves in the investment world with the upcoming launch of its first exchange-traded fund (ETF), the Longview Advantage ETF (EBI). With over $1.1 billion in assets under management, Hill Investment Group is leaving no stone unturned as it prepares for the ETF’s debut in February 2025. The firm is raising pre-launch seed capital by offering investors an innovative tax-efficient strategy to roll appreciated investments into the new fund. This strategic approach is designed to benefit investors by deferring taxes on capital gains, a move that could have significant implications for both the ETF’s growth and its investor base.
The Longview Advantage ETF (EBI): A Blend of Active and Passive Management
The Longview Advantage ETF will employ an actively managed investment strategy that is benchmarked against the Russell 3000 Index. This blend of passive and active management is described by Hill Investment Group as “passive-aggressive,” a strategy that allows the fund to tilt toward value stocks when the value spread between growth and value stocks is more favorable.
Matt Hall, co-founder and CEO of Hill Investment Group, explained that the fund will have dynamic exposure to the value factor, a strategy that adjusts based on market conditions. The “passive-aggressive” approach aims to capture the benefits of passive investing while allowing for more active management during periods when certain market conditions, such as a widening value spread, present opportunities for increased exposure to undervalued stocks.
The fund will initially be launched with a low expense ratio of 25 basis points. However, Hall has indicated that the fee structure will decrease as the assets under management (AUM) in the fund grow, making it an attractive option for long-term investors. This move aims to offer a competitive edge over other actively managed ETFs while maintaining cost-efficiency for investors.
Tax-Efficient Capital Raise Strategy: The Power of Section 351
In a strategic move to boost capital for the ETF’s launch, Hill Investment Group is utilizing Section 351 of the Internal Revenue Service (IRS) code. This allows investors holding securities with low-cost bases and embedded capital gains to transfer those investments into the Longview Advantage ETF without triggering a taxable event. The strategy is being marketed primarily to advisory firms serving clients in the technology sector, where many portfolios are loaded with stock options that have significant embedded capital gains.
The process, known as an “in-kind transfer,” allows the capital gains to be deferred until the investor sells the ETF, which can help minimize the immediate tax impact. It’s a highly efficient way for investors to reallocate appreciated securities into the new ETF without incurring short-term tax liabilities, which could otherwise be a barrier to reallocating assets.
Matt Hall believes that this strategy will be particularly beneficial for clients with long-term holdings in companies that have appreciated significantly, such as those in the tech sector. He predicts that more advisory firms will adopt similar strategies as they recognize the advantages of tax-efficient capital raising in the ETF space.
A Strategic Move for Technology Sector Investors
Hill Investment Group’s decision to target advisory firms with technology-focused portfolios comes as no surprise, given the significant capital gains embedded in many technology stocks. Many technology executives and employees hold substantial amounts of company stock options, which can be difficult to manage due to their embedded capital gains.
By offering this tax-efficient way to allocate appreciated investments into the Longview Advantage ETF, Hill Investment Group provides a solution that allows clients to manage their portfolios more effectively while deferring taxes on gains. This approach is expected to be particularly appealing to clients in the tech industry, where high-growth companies often experience substantial increases in stock value over time.
“This is a super helpful way to help people,” Hall said, referring to the benefits of the Section 351 strategy. The use of this tax-deferral method provides an added layer of flexibility, which can be especially valuable for investors who are looking to mitigate the impact of taxes on their long-term investment strategies.
The Team Behind the Longview Advantage ETF
The Longview Advantage ETF will be managed by Matt Zenz, a seasoned investment professional who previously oversaw assets at Dimensional Fund Advisors. Zenz’s experience in managing large, diversified portfolios makes him well-suited to lead the fund, which will aim to offer a blend of value and growth exposure to investors. Zenz’s expertise in asset management is expected to bring a high level of strategic insight to the fund, ensuring that it performs well in varying market conditions.
Why the Longview Advantage ETF Stands Out
Several factors make the Longview Advantage ETF stand out in a crowded ETF market. First, its actively managed approach offers the potential for superior returns in certain market environments, such as when the value factor outperforms growth. Second, the use of tax-efficient capital raising strategies allows investors to avoid triggering capital gains taxes when reallocating appreciated investments, which can be a significant advantage for high-net-worth individuals and institutional investors.
Additionally, the low expense ratio of 25 basis points makes the ETF attractive to cost-conscious investors, while the firm’s plan to reduce the fee structure as AUM grows demonstrates a commitment to providing long-term value for investors.
The Road Ahead: Growth Potential and Strategic Focus
With a capital raise target of $500 million by the ETF’s February debut, Hill Investment Group is positioning the Longview Advantage ETF for success right out of the gate. The firm’s careful planning and strategic approach to capital raising suggest that the fund has strong growth potential in the coming years. If the ETF can successfully attract a large investor base, it could become a significant player in the ETF space, offering investors a unique blend of active management, tax efficiency, and cost-effectiveness.
The firm’s focus on offering a product tailored to the needs of technology sector investors, coupled with its innovative capital raising strategy, gives the Longview Advantage ETF a strong competitive edge in the market. As the ETF space continues to grow and evolve, Hill Investment Group’s ability to combine tax-efficient strategies with dynamic portfolio management could set a new standard for how ETFs are structured and marketed.
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