EXCLUSIVE: ETFs Vs. Mutual Funds — Why Main Management's Darol Ryan Expects Further Conversions In 2024

During 2023 the trend for mutual funds converting into exchange traded funds grew, and this is expected to continue in 2024 as the popularity and ease of investment in ETFs drives the market forward.

Darol Ryan, managing partner at Main Management, said ETFs have taken over the mantle from mutual funds.

“ETFs are easier for both institutional investors and private investors to access. They are also more transparent and more tax efficient,” he said in an interview with Benzinga.

Main Management has four major investment offerings, all of which are ETFs-of-ETFs — where all holdings are composed of other exchange traded funds.

“We’re not focused on buying individual stocks,” said Ryan, “We’re buying geographical locations we like and sectors we like.”

Tracking The S&P 500

Main’s most popular, and most liquid ETF, with total assets worth nearly $1.6 billion, is its Main Sector Rotation ETF SECT, which is its core U.S. strategy ETF, finding the best sectors in which to be invested.

While it doesn’t aim to emulate the S&P 500, SECT’s recent performance has been impressively close. In 2023, SECT returned 20% compared with the S&P 500’s 24%. So far in 2024, SECT is up 5% compared with the S&P 500’s 6%.

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SECT’s current biggest holdings reflect the sectors that have strongly outperformed in recent months — technology and health care — with exposure to the Invesco QQQ Trust QQQ, as well as the VanEck Semiconductor ETF SMH, both of which have performed better than the S&P 500 since the start of 2023.

“We like health care,” said Ryan. “We have an overweight position there — not only in the major pharmaceuticals sector, but also the smaller biotechs.”

He adds that some of the smaller health care stocks have been undervalued during the last couple of years due to their exposure to higher interest rates that make borrowing more expensive and limit growth opportunities.

“But we believe that longer term, they will be winners. Interest rates will come down and the bigger guys may be buyers of some of these smaller companies.”

Thematic ETFs

Alongside SECT is the Main Thematic Innovation ETF TMAT, a global mid-cap growth fund that holds many of the best-performing ETFs in sectors such as cloud and quantum computing, artificial intelligence and cryptocurrency companies. TMAT returned 32% in 2023.

Launched in December 2022, the Main International ETF INTL is invested in country-specific ETFs such as Japan, Mexico and India, among with many others. Main had been running the strategy in a model for some time before launch, and in 2023 the INTL returned 15%.

Finally, the Main BuyWrite ETF BUYW aims to provide favorable risk-adjusted returns using covered call strategies.

“We’ve been running the BuyWrite strategy a long time, but we previously had that in a mutual fund wrapper. We’ll see a lot of mutual funds launch into ETFs in the coming year,” said Ryan.

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Photo via Shutterstock.