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As exchange-traded funds continue growing in popularity, asset managers are increasingly converting mutual funds to ETFs to adapt to client demands. There have been more than 70 mutual fund-to-ETF conversions in the U.S., and asset managers expect this number to rise further over the next year.

Latest update: Pimco recently proposed its first mutual fund-to-ETF conversion of its $141M Mortgage-Backed Securities Fund, joining other asset managers including Fidelity, JPMorgan (JPM) and BlackRock (BLK). To note, Pimco's mutual fund offerings saw $2.1B inflows for the year ended Jan. 31, while its ETFs recorded $3.9B inflows.

Dig deeper: While mutual funds have been favored historically, investors are now increasingly opting for rival products that offer lower fees and tax advantages. "Growing interest in active strategies since 2021 and the regulatory latitude granted to reorganizations of financial products into ETFs since 2019 have spurred increasing mutual fund to ETF conversions," said Peter Shea, co-head of ETF Practice at law firm K&L Gates. However, while ETFs may be traded at prices less than their net asset value, mutual funds always trade at NAV - without any bid/ask spreads.

U.S. mutual funds saw net outflows of more than $1T from Jan. 2021 to Dec. 2023. "In a world where you have zero commission stock trading and can get exposure to a diversified basket of stocks through direct indexes, it's hard to say that the mutual fund is an efficient vehicle anymore," said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. Do you think ETFs are now a better investing option? Take the WSB survey.

Chip ban

China has adopted guidelines to halt the use of U.S.-made microprocessors from Intel (INTC) and AMD (AMD) in government servers and personal computers. The guidance also seeks to replace Microsoft (MSFT) Windows and foreign-made database software with domestic alternatives, although Investing Group Leader Danil Sereda doesn't see this as a real threat. Beijing has been working to replace foreign technology in sensitive operations with local brands, with Chinese government officials ordered to stop bringing iPhones and other foreign devices to work. Meanwhile, the U.S. has been restricting sales of advanced semiconductor and related equipment to China over national security fears. (133 comments)

Treasury bets

Famed bond investor Bill Gross has recommended betting on a flattening yield curve, noting that the U.S. 10-year Treasury yield (US10Y) is right where it was 20 years ago at 4.2%. "I find it remarkable that 10-year interest rates are unchanged since the beginning of 2004," he said, adding that there is currently too much supply. Gross said the negative yield curve must go positive sooner or later if the economy is to stay positive. "I am long 2’s (US2Y), and short 5’s (US5Y) and 10’s." Recall that the yield curve between the US2Y and US10Y once again stayed inverted for the longest time ever last week as inflation continues to run hot. (24 comments)

Shutdown averted

U.S. President Joe Biden on Saturday signed into law a $1.2T government funding package, averting a partial shutdown and ending months of wrangling between Republicans and Democrats. Biden's action came after the Senate earlier passed the legislation by a vote of 74 to 24. The final passage came after the midnight deadline, meaning some federal funding technically expired briefly. But the Senate's action means that the federal government is now funded through the end of the fiscal year. "This agreement represents a compromise, which means neither side got everything it wanted," said Biden. "But it rejects extreme cuts from House Republicans." (78 comments)

Today's Markets

In Asia, Japan -1.2%. Hong Kong -0.2%. China -0.7%. India closed.
In Europe, at midday, London -0.4%. Paris -0.4%. Frankfurt -0.1%.
Futures at 7:00, Dow -0.2%. S&P -0.3%. Nasdaq -0.4%. Crude +0.6% to $81.12. Gold +0.4% to $2,169.50. Bitcoin +3% to $67,006.
Ten-year Treasury Yield +3 bps to 4.23%.

Today's Economic Calendar

8:25 Fed's Bostic: "Equitable Economic Development"
8:30 Chicago Fed National Activity Index
10:00 New Home Sales
10:30 Fed's Cook: "The Dual Mandate and the Balance of Risks"
10:30 Dallas Fed Manufacturing Survey
1:00 PM Results of $66B, 2-Year Note Auction

Companies reporting earnings today »

What else is happening...

U.S. asks Ukraine to stop drone strikes on Russian oil refineries.

16 states sue to stop Biden's halt on LNG export project permits.

Goldman: Look beyond Magnificent 7 to Europe's GRANOLAS.

FAA mulls limiting new routes for United (UAL) after safety mishaps.

Boeing (BA) union wants board seat to 'save company from itself.'

Airbus (OTCPK:EADSF) may buy some Spirit Aero (SPR) assets.

Elon Musk celebrates as Neuralink patient tweets using brain chip.

Johnson Controls (JCI) receives buyer interest for $6B HVAC assets.

Credit card delinquencies dip, charge-offs rise in muted February trend.

Germany cannabis legalization on schedule as bill clears final hurdle.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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