Constancy Investments is looking for clearance that may permit a few of its best-known mutual funds to additionally function as exchange-traded funds, turning into the most important agency to problem Vanguard Group’s former monopoly on the idea.

The Boston-based agency utilized Tuesday for a authorities waiver that may permit its actively managed mutual funds to additionally difficulty a separate class of ETF shares, in response to a regulatory submitting.

Vanguard pioneered and started patenting this dual-share construction greater than 20 years in the past, which helped its funds generate larger after-tax returns and seize nearly a 3rd of the U.S. marketplace for ETFs.

The final of its patents expired in Could, offering companies reminiscent of Constancy with a neater method to bundle their stock- and bond-picking methods into ETFs.

“Constancy’s mainstay has been lively administration, and till this cut-off date, it has been very troublesome to get ETFs round lively funds,” mentioned Gus Sauter, who co-invented Vanguard’s patent whereas serving as its chief funding officer. “I believe Constancy is taking a look at this as a possibility to get into the area in a giant means.”

A Constancy spokesperson declined to remark.

The twin-share class construction offers mutual funds entry to the tax benefits of ETFs, boosting after-tax returns.

Distinct tax remedies have traditionally separated the ETF and mutual fund classes, with the previous in a position to keep away from capital-gains levies through its distinctive in-kind redemption course of.

Vanguard, by creating ETF lessons for a few of its conventional merchandise, has used the design — solely legally — to slash the taxes reported by its funds for greater than 20 years.

Constancy mentioned in its software that portfolio managers who oversee dual-class funds may interact in “cautious tax administration.”

‘Massive Strikes’

When U.S. regulators launched sweeping rule modifications in 2019 to make launching ETFs simpler, the U.S. Securities and Trade Fee intentionally retained the necessity for issuers to use for an exemption in the event that they needed to pursue ETFs in a multiple-share class construction.