US-listed ETFs pulled in a record $1.49 trillion in 2025, the second straight year inflows cleared $1 trillion, and industry assets have since pushed past $15 trillion. Mutual funds spent the same eleven months bleeding $551 billion. The gap in flows between the two — $1.79 trillion in 2025 alone — has nearly doubled from 2024. One wrapper is taking the other’s franchise, fund by fund.
The industry’s response has been conversion. More than 200 mutual funds have flipped into ETFs since 2021, across 68 firms, with 60 conversions in 2025 alone — a new record, and the pace has kept climbing into 2026. The converted vehicles now hold roughly $263 billion in assets and pulled in $38.6 billion of net flows last year, often reversing years of redemptions the day the ticker changes. Conversion keeps the track record, cuts the expense ratio, and adds intraday liquidity. It also creates an operating-model problem that most boards don’t see until it surfaces months later.
What conversion actually breaks
A mutual fund’s operating model was built for once-a-day pricing, omnibus accounts and cash-driven flows. An ETF runs on authorized participants, in-kind creation and redemption, intraday indicative values and capital-markets messaging that never stops during trading hours. Converting a fund, or bolting an ETF share class onto one, doesn’t remove that mismatch. It forces both models to run side by side, usually on infrastructure that was only ever designed for one of them.
Custody teams have to manage large in-kind AP transfers alongside legacy cash flows. Fund accounting has to support tighter reconciliation and more frequent disclosure without breaking the mutual fund’s existing NAV process. Boards have to prove the ETF share class isn’t being cross-subsidised by the mutual fund pool: tax leakage from forced redemptions, cash drag from mutual fund liquidity needs, the two investor bases quietly working against each other inside one portfolio. None of that shows up in the press release announcing the conversion. It shows up later, in an audit finding or a distributor’s due diligence questionnaire, once someone finally asks how the two share classes actually interact.
T+1 doesn’t wait for your migration to finish
Layer settlement compression on top and the timing gets worse. US, UK and Canadian equities have moved to T+1; Europe and Switzerland are being pushed toward the same. A fund that straddles a mutual fund structure in one settlement cycle and an ETF share class trading across multiple venues and CSDs now has to reconcile FX, collateral and trade capture faster, with less room for a human to catch the mismatch overnight. Firms running this on email instructions to an administrator and an end-of-day batch job are one busy trading day away from a failed settlement with their name on it.
The wrapper migration is an operating-model test, and most legacy stacks were built for a world with only one wrapper to run.
Running mutual funds and ETFs on one engine
The firms managing this well will treat mutual fund and ETF operations as configurations of the same underlying process, portfolio, capital activity, NAV and investor records held in one system, with wrapper-specific logic (AP messaging, basket construction, in-kind mechanics, cross-subsidization controls) applied as configuration, not bolted on as an afterthought.
That’s the architecture behind TrussEdge. Mutual funds, converted ETFs and ETF share classes run off the same application, so a creation/redemption event, an FX conversion and a settlement status update sit next to the mutual fund’s own activity in one place, not in two systems that spend their day reconciling each other. Exception-based reporting flags where a T+1 timeline is at risk or a cross-subsidization control needs a second look, instead of waiting for someone to find it manually. The tax and liquidity mechanics that make ETFs worth the conversion in the first place get built into the platform, rather than left to a spreadsheet someone maintains until they leave the firm.
Making conversion repeatable
Some of the last four years’ conversions worked because the fund was a genuinely good candidate. Others worked despite an operating model that wasn’t ready, propped up by manual effort that won’t scale to the next one. A new share class or a parallel ETF launch adds to that surface area each time, and the systems underneath either absorb it or start showing cracks.
The firms treating this as infrastructure ask a different question: can we convert the next ten funds without rebuilding the stack each time. That’s the capability gap the wrapper migration is testing, fund by fund.
www.trussedge.com I sales@trussedge.com
About Thomas Byrne
Thomas Byrne is Business Development Manager at TrussEdge, with over 20 years of experience across buy- and sell-side firms in sales, trading, and middle- and back-office roles. Since joining TrussEdge in 2018, he has focused on helping investment managers develop practical, tailored solutions across their technology and operational needs.
