Financial advisory firm Hill Investment Group is leaving nothing to chance as it prepares to roll out its first exchange-traded fund.
The $1.1 billion St. Louis-based registered investment advisor, which has filed with the Securities and Exchange Commission to offer the Longview Advantage ETF (EBI), is raising pre-launch seed capital by offering investors a way to reallocate appreciated investments into the new ETF.
The capital raise, which is expected to reach $500 million by the ETF’s February debut, employs Section 351 of the Internal Revenue Service code. In essence, investors holding securities with a low-cost basis and embedded capital gains can roll the value of those investments into the new ETF without triggering a taxable event.
The in-kind transfer doesn’t remove the embedded capital gains; instead, it defers them to be paid when the investor eventually sells the ETF.
Seeding New ETF With In-Kind Transfers
Matt Hall, co-founder and CEO of Hill Investment Group, said the capital raising strategy is being marketed to other advisory firms, particularly those serving several clients in the technology sector who have portfolios loaded with stock options that can have a wealth of embedded capital gains.
“We think the 351 exchange is a super helpful way to help people,” Hall said. “My prediction is you’ll hear more about this strategy as other firms try to coordinate with advisory firms.”
The new ETF will be an actively managed strategy benchmarked to the Russell 3000 Index, which Hall described as a blend of passive and active.
“We call it passive-aggressive,” he said. “Our fund will have dynamic exposure to the value factor with a greater tilt to value at times when the value spread is wider, which will be the more active component.”
The EBI ETF will launch with an expense ratio of 25 basis points, but Hall said that the fee will be lowered as assets in the fund grow.
The fund will be managed by Matt Zenz, who formerly oversaw assets at Dimensional Fund Advisors.