Sequoia Fund to Be Transplanted into an ETF

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If a $3.6 billion mutual fund converts to an ETF in the forest, does it make a sound?

The Sequoia Fund, a somewhat concentrated product that has struggled for years with performance and outflows, is doing just that. The investment team behind the fund, Ruane Cunniff, disclosed the pending change in regulatory filings 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 conversion is complete, taxable investors in the Sequoia ETF should be able to defer the realization of all, or nearly all, taxable gains for as long as they maintain their investment in the ETF,” the letter read.

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The switch reflects the mass movement of assets out of mutual funds (particularly actively managed ones) and into ETFs, said Dan Sotiroff, associate director of ETF and passive strategies research at Morningstar. But in the Sequoia Fund’s case, the tax issue is pretty big: About half of its assets appear to be from capital gains, he noted.

The fund, which has one share class, has also seen better days. It was at the center of litigation brought by retirement plan participants about 10 years ago over Sequoia’s high allocations to Canadian drugmaker Valeant Pharmaceuticals, which imploded and suffered severe losses. One case brought by DST Systems profit-sharing and 401(k) participants resulted in Ruane Cunniff (formerly Ruane, Cunniff and Goldfarb) paying tens of millions in settlements, though fiduciaries in a separate case involving the Walt Disney 401(k) defeated a similar lawsuit. The Sequoia Fund looks different today, and its single biggest allocation is to Rolls Royce, representing nearly 13% of its portfolio.

But since the beginning of 2015, the fund has struggled with performance, and some investors pulled their money, Sotiroff noted:

Over 134 months, only three had net inflows.

Investors redeemed a total of about $6.5 billion in assets.

Performance has lagged the market and the fund’s Morningstar category, though it did better in 2018, 2021 and 2025, returning over 22% last year.

A Choice to Make: All of the mutual fund’s shares will be moved to the ETF later this year, though clients in the SMA strategy can choose whether they want their assets placed in it. It’s unclear whether many retirement plans include the mutual fund, though if they do, it would be unlikely that they could remain invested, given that ETFs are generally incompatible with 401(k)s. One wrinkle in moving from a mutual fund to an ETF structure is that the latter cannot place restrictions on new investments, Sotiroff said. “If they were to run into capacity issues down the road, they would lose that ability to close the fund to new investors.”

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