The convergence of ETFs, mutual funds, and tokenization is gaining momentum as asset managers look for ways to modernize product structures, expand distribution, and future-proof their businesses without abandoning established regulatory frameworks.
Recently at Exchange, market participants explored how regulatory innovation and emerging technology are narrowing the divide — while laying the groundwork for tokenized fund infrastructure.
Aisha Hunt, founder of Kelley Hunt, and Alex Morris, co-founder and CEO of F/m Investments, joined Roxanna Islam, head of sector & industry research at TMX VettaFi on stage. They outlined how firms are leveraging existing frameworks to modernize fund structures without abandoning the safeguards that have historically defined the asset management industry.
Why the Lines Between ETFs and Mutual Funds Are Blurring
As investor preferences evolve and operational demands increase, asset managers are rethinking how traditional vehicles can coexist and even complement one another. Rather than positioning ETFs and mutual funds as competing wrappers, firms are exploring ways to unify their strengths.
A key development is the introduction of mutual fund share classes within existing ETF structures. This approach allows managers to deliver a consistent investment strategy across multiple distribution channels while reducing fragmentation in fees, performance, and reporting.
“If you’re in a [mutual] fund as a taxable investor...and it has short-term capital gains, those probably go away [in an ETF class],” Morris said in an interview. “That’s a big win for people.”
Morris also addressed the "mortal enemy" narrative between mutual funds and ETFs. He noted that dual share classes allow for a "perfect clone" that eliminates investor confusion over fees and performance.
Several factors drive interest in this model. They include operational efficiency, modernization of legacy assets and seamless investor experience.
Taken together, these benefits position dual share class structures as a practical bridge between legacy systems and modern fund innovation.
Tokenization as the Next Step in Fund Evolution
Beyond share class innovation, tokenization is emerging as potentially informative for how fund ownership is recorded, transferred, and settled. While often associated with cryptocurrency, industry leaders emphasized that tokenization in this context is better understood as an infrastructure upgrade.
Rather than operating in unregulated environments, current approaches focus on embedding tokenized assets within existing legal and compliance frameworks.
Hunt described the proposal to tokenize the F/m US Treasury 3 Month Bill Fund (TBIL) as a "digital Fort Knox." This model builds on several foundational regulatory and operational elements intended to provide a robust security "stack."
From Incremental Change to Structural Shift
Looking ahead, tokenization is widely viewed as part of a broader shift in market infrastructure. Much like the move to decimalization transformed trading decades ago, distributed ledger technology could enable continuous markets and near-instant settlement over time.
At the same time, adoption is expected to be gradual. Early implementations are likely to remain institutional and tightly controlled. Meanwhile, broader retail access will develop as regulatory clarity and market comfort increase.
Looking forward, both speakers viewed tokenization not as a "crypto" play. Rather, they saw it as a fundamental "plumbing" upgrade. Morris likened the shift to the industry’s transition to decimalization — an inevitable change that will eventually result in 24/7 markets and instantaneous settlement. Hunt warned that firms ignoring these developments risk being caught off guard, much like those currently scrambling to adapt to dual share class relief.
The current application focuses on a conservative, "white-listed" approach for institutional players. However, the panel agreed that the long-term goal is to meet the demographic demand of "digital-native" investors.
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