The Minneapolis-based Leuthold Group, a leader in investment management and research, has taken a significant step in expanding its presence in the exchange-traded fund (ETF) market. With the conversion of its 25-year-old Leuthold Select Industries mutual fund into the Leuthold Select ETF (LST), the firm continues to adapt to the growing investor preference for ETFs. The new ETF began trading on Tuesday morning, signaling a strategic move by Leuthold to leverage the benefits of the ETF structure.
Leuthold’s Journey in the ETF Space
Founded in 1981 as a research firm, Leuthold Group made its foray into investment management in 1995 with mutual funds. The firm manages $1.1 billion in assets and now operates three mutual funds after this latest conversion.
Leuthold entered the ETF space in 2020 with the launch of the Leuthold Core ETF (LCR), an actively managed fund that tactically invests in both stocks and bonds. LCR has since grown to $81 million in assets under management, boasts a five-star rating from Morningstar, and ranks in the 55th percentile of the tactical allocation category.
The success of LCR likely paved the way for the transition of the Leuthold Select Industries mutual fund into an ETF.
About the Leuthold Select ETF (LST)
The Leuthold Select ETF (LST) is an actively managed fund that employs a capital appreciation strategy, emphasizing equity group selection and market rotation based on dynamic market themes.
Portfolio Composition:
- Allocates assets across 20 industry sectors.
- Top sectors include communications services, systems software, and homebuilding.
Management Team:
The ETF is managed by Leuthold’s Director of Equities, Scott Opsal, along with Portfolio Managers Greg Swenson and Chun Wang.
Performance History:
The mutual fund from which LST was converted reported impressive performance metrics:
- A 13.2% gain in 2024.
- A five-year annualized return of 12.7%.
Mutual Fund Conversions: A Growing Trend
The conversion of mutual funds into ETFs is becoming an increasingly popular trend in the financial industry, driven by the operational efficiency and tax advantages of ETFs.
Growth of Mutual Fund-to-ETF Conversions:
- Over 55 mutual funds were converted into ETFs in 2024.
- This marks a significant increase from 35 conversions in 2023 and 20 in 2022.
This trend reflects the shifting investor preference toward ETFs due to their transparency, cost-effectiveness, and tax efficiency.
Doug Ramsey, Leuthold’s Chief Investment Officer, emphasized this in a prepared statement, noting that the conversion of the mutual fund into LST aligns with the firm’s commitment to delivering operational ease and maximizing tax benefits for investors.
Why ETFs Are Dominating the Investment Landscape
The rapid rise in the popularity of ETFs has been fueled by their distinct advantages over traditional mutual funds:
- Tax Efficiency: ETFs often provide significant tax advantages due to their unique creation and redemption mechanism.
- Lower Costs: Many ETFs feature lower expense ratios compared to mutual funds, making them appealing to cost-conscious investors.
- Flexibility: ETFs can be traded throughout the day on exchanges, providing liquidity and real-time pricing, unlike mutual funds that are priced only at the end of the trading day.
- Transparency: ETFs typically disclose their holdings daily, offering greater transparency than many mutual funds.
Implications for Investors
The transition of the Leuthold Select Industries mutual fund into an ETF reflects the industry-wide trend of adapting to investor demands for more accessible, efficient, and cost-effective investment vehicles.
What This Means for Investors:
- Existing Mutual Fund Shareholders: Current investors in the mutual fund benefit from a seamless transition into an ETF structure, preserving their investment history while gaining additional benefits like tax efficiency.
- New ETF Investors: The actively managed LST provides an opportunity for investors to tap into a diversified portfolio guided by a proven investment strategy.
The Road Ahead for Leuthold
With the addition of LST to its lineup, Leuthold continues to solidify its position in the ETF market. The firm’s success with LCR and its strategic approach to portfolio management suggest that LST has strong potential to attract investor interest.
Doug Ramsey’s statement underscores the firm’s commitment to innovation and aligning its offerings with investor needs:
“We’ve been pleased with the performance and market reception of LCR, so it was a natural progression to convert Select Industries to an ETF.”
As more firms follow suit, the trend of mutual fund-to-ETF conversions is likely to accelerate, further transforming the investment landscape.
Conclusion
The launch of the Leuthold Select ETF (LST) marks another milestone in the firm’s journey toward modernizing its investment offerings. By embracing the ETF structure, Leuthold not only adapts to evolving market demands but also reinforces its commitment to delivering high-performing, investor-friendly financial products.
Investors looking for a diversified, actively managed fund with a strong performance track record may find the Leuthold Select ETF an appealing addition to their portfolios.
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