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If a $3.6 billion mutual fund turns into an ETF in the wild, does it sound like that?
The Sequoia Fund, a somewhat concentrated product that has struggled with performance and exits for years, does just that. The investment team behind the fund, Rowan Cunniff, disclosed the pending change in regulatory filings on Monday. The decision has a lot to do with taxes, the company said in letters to mutual fund and separately managed account clients.
“Once the exchange is completed, taxable investors in the Sequoia ETF should be able to defer all, or substantially all, of their taxable gains for as long as they maintain their investment in the ETF.”
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The switch reflects a collective movement of assets out of mutual funds (especially actively managed ones) and into ETFs, said Dan Suteroff, co-director of ETF and passive strategies research at Morningstar. But in Sequoia Fund’s case, the tax issue is bigger: About half of its assets appear to come from capital gains, he noted.
The fund, which has a share class, has also seen better days. It was at the center of a lawsuit brought about 10 years ago by pension plan participants over Sequoia’s high allocation to Canadian drugmaker Valeant Pharmaceuticals, which collapsed and suffered heavy losses. A lawsuit brought by DST Systems profit-sharing and 401(k) participants paid Ruane Cunniff (formerly Ruane, Cunniff and Goldfarb) tens of millions in settlement, although in a separate case the federation defeated a similar suit involving Walt Disney’s 401(k). The Sequoia fund looks different today, and its single largest allocation is to Rolls-Royce, which represents nearly 13% of its portfolio.
But since the beginning of 2015, the fund has struggled to perform, and some investors have pulled out, Soterov noted:
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In 134 months, there were only three net flows.
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Investors recovered about $6.5 billion in assets in total.
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Performance has lagged behind the market and the fund’s Morningstar category, although it did well in 2018, 2021 and 2025, returning 22% last year.
A choice to make: All mutual fund shares will be transferred to the ETF later this year, although clients in the SMA strategy can choose whether they want to invest their assets in it. It’s unclear whether most retirement plans include mutual funds, although if they do, it’s unlikely they’ll remain an investment, given that ETFs are generally not compatible with 401(k)s. One of the hurdles in moving from a mutual fund to an ETF structure is that the latter cannot ban new investments, Soterov said. “If they run into capacity issues down the road, they will lose the ability to close the fund to new investors.”
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