Global ETF assets reached $20 trillion at the end of the first quarter of this year, 35% above the same period last year, with $626 billion in net inflows – the highest ever recorded. In the week ending 15 April 2026, ETFs saw a net inflow of $39 billion, while mutual funds saw a net outflow of $18 billion.
As capital continues to shift from mutual funds into ETFs, managers are under pressure to leverage their existing mutual funds more and offer ETF-compatible products. ETF share classes of mutual funds are gaining traction as a way to do exactly that, creating an avenue to distribute mutual funds to investors that are already showing a lot of interest. According to a recent survey of 325 ETF investors in the US, Europe, and China, 82% would invest in an ETF share class.
Rather than launching an entirely new product, it is the same portfolio, same investment strategy, same performance track record, but a different wrapper built for a different distribution channel. The model lets asset managers retain legacy mutual fund clients while attracting ETF-native investors, unlock operational scale without cannibalising existing assets, and carry forward a performance history that would take years to rebuild from scratch. It also enables tax-efficient exchanges between wrappers and access to different liquidity profiles within a single investment strategy.
However, launching and servicing ETF share classes requires full ETF infrastructure, operational expertise, and connectivity to capital markets participants. It is not a simple extension of existing capabilities.
ETFs have become the vehicle of choice for a generation of investors. Germany’s now-ubiquitous Sparpläne, monthly investment schemes through which retail investors drip-feed capital into index-tracking products, are a case in point. Neo-brokers and digital platforms across Europe have built their propositions around cheap, liquid ETF access. Governments, from the UK’s push to expand retail investment to the Europe’s Savings and Investments Union, are explicit about wanting households to save less and invest more. At the same time, fixed income ETFs have become mainstream tools for asset allocators and insurers, wealth platforms increasingly demand exchange-traded wrappers for model portfolios, and multi-asset managers want to rebalance intraday.
For an active manager with a successful mutual fund range, the ETF share class is the way to tap into this. Schroders is standing up a full ETF business with its own issuance, regulatory permissions, and in-house capital markets capability. Legal & General is among those exploring how to leverage existing fund franchises. Others are pursuing white-label partnerships with specialists such as HANetf or Waystone.
Nor is the traffic one way. Several ETF-native houses have begun launching mutual fund share classes of their existing ETFs for the same reason: to meet platforms, intermediaries, and investor demographics that still transact in mutual funds. DWS’s Xtrackers business and HSBC Asset Management are among those pursuing this reverse route. They are meeting investors in the wrapper with which they are already familiar.
This dual share class model is attractive precisely because it promises the least disruption to everything a traditional manager has already built.
The biggest barrier, however, is not product design, but operating model change. Most asset managers are underprepared for the infrastructural and operational demands of launching and scaling ETFs.
An ETF share class shares a portfolio with the mutual fund, but it still sits inside the primary market machinery of the ETF ecosystem, with all the attendant plumbing. Authorised participants need to be onboarded and managed, market makers have to be cultivated, and a capital markets function is needed to support liquidity, monitor spreads, and market the fund to professional buyers. Without APs willing to create and redeem shares, and without market makers providing tight secondary-market liquidity, an ETF share class will not trade. These are functions that many traditional mutual fund houses have never needed to build.
It is a similar story with the technical layer. Mutual fund transfer agency systems are not designed to process ETF orders. They have no native concept of a creation or redemption basket, or the calculation and distribution of the portfolio composition files (PCFs) that underpin the creation and redemption process, nor a way of handling the settlement workflows that connect issuers to international central securities depositories such as Euroclear and Clearstream in Europe, or the DTCC in the US. They cannot track the underlying cost of creating and redeeming ETF shares, or manage the cash-for-shares exchange that sits at the heart of the AP relationship.
Pricing and dealing mechanisms also differ. Unlike mutual funds, ETFs price continuously and settle through the exchange system, with primary market activity bundled into creation and redemption orders rather than investor subscriptions. Bridging the two worlds inside a single fund, so that the fund accountant sees a consistent, combined picture, is an operational challenge.
On top of all this, you have the regulatory and governance demands of a listed product, such as daily portfolio disclosures, exchange relationships, and additional oversight. In short, ETF share classes require a full ETF build to make them work.
Firms could build or adapt their own infrastructure, but replicating ETF operational infrastructure from scratch is expensive and slow. It requires hiring capital markets talent that is scarce and in demand from every ETF-native competitor, and it requires technology investment that has to be sweated across a product range that may, initially at least, consist of a small number of share classes. This means tying up resources when you are trying to optimise for speed to market.
This is fundamentally an infrastructure question, not a product one. What is needed is connectivity between the mutual fund and ETF ecosystems – integrated, digital servicing that can operate across both.
Calastone’s mutual fund network already connects transfer agents, distributors, and asset managers across more than 50 markets. Our ETF servicing platform extends that connectivity into the primary market, supporting order management, creation and redemption workflows, AP settlement, and ICSD integration for listed products.
What makes this combination material for ETF share classes is that the infrastructure can recognise which share classes within a fund are listed and which are unlisted, applying the full weight of ETF primary market processing of the former, while treating the latter as straightforward mutual fund orders, and then combining the resulting flows into a single, consistent reporting package for the fund accountant. The infrastructure can effectively support a sub-register for the ETF share class alongside the existing mutual fund register, without forcing the manager to stand up parallel infrastructure.
This means that the fund accountant sees one fund, the APs and ICSDs see an ETF, and the mutual fund register and its distributors see a mutual fund. The infrastructure underneath translates between them.
The same approach works in reverse. An ETF issuer launching an unlisted share class – the DWS Xtrackers or HSBC Asset Management model – can use the same platform to switch off ETF-specific processing for that share class while maintaining holistic reporting across the fund. This architecture also extends to the next wrapper on the horizon: a tokenised share class that brings the fund to DeFi-native distribution without forcing you to rebuild your operating model a third time.
The point is that connectivity is where the leverage now lies. Asset managers do not need to own every piece of the ETF operating model, just access to infrastructure that lets them plug into it.
Asset managers thinking of launching an ETF share class should ask themselves three questions.
First, is the operating model ready? Does your transfer agent support ETFs, and do you have the capital markets capability, AP relationships, governance framework and processes needed to calculate and distribute PCFs?
Second, are the right infrastructure partnerships in place? Building every component in-house is not the right answer for most. Choose which bits of the operating model to own and which to access through partners who have existing scale.
Third, can the chosen approach scale in the long term? ETF share classes are unlikely to be a one-off project. If the strategy works, the next fund, the next wrapper, the next market will follow. Having the right infrastructure partners in place means you can take those next steps faster.
The ETF share class is, above all, a distribution strategy, and the thing that decides its success is the flexibility of the infrastructure, the ability to integrate across ecosystems, and the speed to market.
