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Home>Research & Insights>Fund Times>ETFs Aren't Always What They Seem

ETFs Aren't Always What They Seem

The curious disappearance of the company called PureFunds.

John Rekenthaler, 08/04/2017

Here Today, Gone Tomorrow
(Note: This column owes a large debt to "Who Actually Owns Your ETF?," from ETF.com's Dave Nadig. Although Mr. Nadig took the discussion in quite a different direction, most of the fact-finding is his.)

Some things about funds are abstruse, but not which company runs the show. If a fund is called Vanguard or Fidelity or T. Rowe Price, then Vanguard or Fidelity or T. Rowe Price calls the shots. It's really that simple.

Or so I had thought.

Last week, an exchange-traded fund lineup named PureFunds went poof! On Friday, the PureFunds ETFs existed. That afternoon, a press release announced that the PureFunds name would be no more, and that beginning Tuesday morning (not quite an overnight coup, but pretty close) that group would be called ETFMG instead.

I know what you're thinking. Datsun became Nissan. Jerry's Guide to the World Wide Web shortened to Yahoo. Brad's Drink was rebranded as Pepsi-Cola. A book with a new cover remains the same book, Rekenthaler. Except that … PureFunds is actually gone. There does exist a company called PureShares, which would love to run investments called PureFunds, and that firm was booted from the fund lineup that carried its name.

(Not happily, either--PureShares responded to the news by filing suit.)

Who's in Charge?
It is not normal for the entity that lends its name to a fund to be removed from control. Quite the reverse. Typically, funds are named for their Advisors, and Advisors control the fund. Yes, technically, shareholders own the funds in which they have invested (just as stockholders legally own corporations). But the nine tenths of the law that comes from possession rests with Boards of Directors, and Boards work for Advisors. (That statement is not strictly correct, but it holds true in practice.)

Sometimes Advisors employ Subadvisors. That designation may be inconsequential, as when Fidelity appointed its corporate subsidiary Fidelity Management & Research Hong Kong as Subadvisor to assist on Contrafund FCNTX. Or it may be relevant indeed, as with Wellington's role on Vanguard Wellington VWELX. At Vanguard's behest, Wellington manages that portfolio. Wellington's task for that fund is therefore critical--and can be ended at any time by the Advisor, Vanguard. General contractor, subcontractor.

is vice president of research for Morningstar.

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