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Post by xray on Aug 13, 2021 17:57:09 GMT
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Yahoo Finance 'Floodgates' open on mutual funds converting into ETFs Brian Cheung·Reporter Fri, August 13, 2021, 1:33 PM
On Wednesday, JPMorgan Asset Management announced plans to convert about $10 billion in U.S. mutual funds into ETFs, the latest in a trend that could be set to accelerate. The plan will create "active transparent ETF structures" out of four current mutual funds: JPMorgan International Research Enhanced Equity Fund, JPMorgan Market Expansion Enhanced Index Fund, JPMorgan Realty Income Fund, and JPMorgan Inflation Managed Bond Fund.
Like others that have recently converted mutual funds into ETFs, JPMorgan cited better transparency and potential tax benefits as reasons for the change. Intraday liquidity is also a major selling point for ETFs which, unlike mutual funds, can be traded.
"As a leading active manager, it is important to us that we continue to deliver our investment capabilities in the vehicle that meets our clients' desired outcomes," said Bryon Lake, head of JPMorgan’s Americas ETFs.
Dimensional Fund Advisers was one of the first to announce a conversion, announcing in November last year that it would convert six mutual funds into corresponding ETFs. A number of other funds, such as Guinness Atkinson and Adaptive Investments, followed in the months after with conversions of their own.
“It was really well received. That just opened the floodgates for us to start seeing all these other asset managers consider that as a pathway to ETFs,” said Cinthia Murphy, the head of digital experience at ETF.com.
Murphy told Yahoo Finance that JPMorgan’s move “suggests we may just be at the beginning of this trend taking shape here.”
Investor demand for ETFs across the board have exploded as of late. In 2020, ETFs saw a record $507.4 billion in inflows, according to ETF.com.
But the pandemic boom in ETFs merely extends a multi-year trend of inflows into ETFs and outflows from passive funds, at least when looking at funds targeting U.S. equities.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance.
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Live Long and Prosper....
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Post by steelpony10 on Aug 13, 2021 18:00:37 GMT
Can’t beat them join them. Although reading many posts a majority don’t seem to care.
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Post by FD1000 on Aug 14, 2021 13:38:14 GMT
I love it if...the ER is lower, buy it anywhere, trade it without penalties.
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Post by yogibearbull on Aug 14, 2021 14:41:59 GMT
Some of these active ETFs have ERs that are high from ETF standards and are more like those for active mutual funds. The idea to make big money from active ETFs because most cannot from active mutual funds is good only until some low-cost players jump into this space. It isn't just Vanguard. Remember that GS came in with very low ER factor-ETFs and that disrupted the high ER factor-ETF business.
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Post by anitya on Aug 14, 2021 16:19:40 GMT
I would think it locks up the date of conversion retail AUM. Of course, it also locks out future retail inflows. No? So, I think conversion is a good idea for sponsor if a fund is seeing or anticipating steady outflows from retail. May be it is a sign that markets are at peak and sponsor wants to lock in AUM.
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Post by chang on Aug 14, 2021 21:35:05 GMT
Some of these active ETFs have ERs that are high from ETF standards and are more like those for active mutual funds. The idea to make big money from active ETFs because most cannot from active mutual funds is good only until some low-cost players jump into this space. It isn't just Vanguard. Remember that GS came in with very low ER factor-ETFs and that disrupted the high ER factor-ETF business. Doesn't this make it impossible to close a fund to new investments? So if the fund is extremely successful (-> popular) it is vulnerable to bloat. These "active" ETFs seem like a bad idea on so many levels.
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Post by yogibearbull on Aug 14, 2021 22:05:44 GMT
anitya , ETFs do have creation/redemption processes for adding/withdrawing assets via institutional authorized participants (not by retail investors). So mutual fund conversion to ETF doesn't lock in the AUM. Only a conversion to CEF would do that. chang , there are only 7 ETFs with $100+ billion AUM: SPY, IVV, VTI, VOO, QQQ, VEA, IEFA (3/7 are SP500 ETFs). They are all indexed, as most ETFs are. Active ETF AUM is only 4-5% of the total ETF AUM and that includes many active bond ETFs that have been around for a while. It will take a long while for active equity ETFs to grow big. Low-cost active ETFs would be great as tax-efficiency is inherent in the ETF structure. etfdb.com/compare/market-cap/Edit/Add: Here are the largest active ETFs and only 4 have $10+ billion AUM: ARKK, JPST, MINT, DFAC (2/4 are ultra-ST bond ETFs). www.etf.com/channels/active-management-etfsetfdb.com/themes/actively-managed-etfs/
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Post by chang on Aug 14, 2021 22:26:21 GMT
Yogi, you should add together the assets of the related OEF and ETF. I don't know the symbols offhand, but Fido's Blue Chip Growth fund is an example. Now they will never be able to close that fund, like FDGRX (closed for a long time) or FCNTX (has been closed and reopened in the past).
There are other things about active ETFs that I find troublesome … will discuss later.
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Post by jongaltiii on Aug 14, 2021 22:29:55 GMT
yogibearbull et al … if you could only buy 1 etf for entire portfolio to hold for 20 years… would it be one from your 7 list that you posted? PS: posted this without seeing chang troublesome post… so I’m interested in hearing what he has to say on the troublesome part.
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Post by anitya on Aug 15, 2021 0:47:17 GMT
anitya , ETFs do have creation/redemption processes for adding/withdrawing assets via institutional authorized participants (not by retail investors). So mutual fund conversion to ETF doesn't lock in the AUM. Only a conversion to CEF would do that. chang , there are only 7 ETFs with $100+ billion AUM: SPY, IVV, VTI, VOO, QQQ, VEA, IEFA (3/7 are SP500 ETFs). They are all indexed, as most ETFs are. Active ETF AUM is only 4-5% of the total ETF AUM and that includes many active bond ETFs that have been around for a while. It will take a long while for active equity ETFs to grow big. Low-cost active ETFs would be great as tax-efficiency is inherent in the ETF structure. etfdb.com/compare/market-cap/Edit/Add: Here are the largest active ETFs and only 4 have $10+ billion AUM: ARKK, JPST, MINT, DFAC (2/4 are ultra-ST bond ETFs). www.etf.com/channels/active-management-etfsetfdb.com/themes/actively-managed-etfs/ No, they lock in the retail investors' AUM present at the time of conversion. The emphasis of my post was on retail (not institutional). As an example, imagine how much AUM VWELX would have been able to hang onto if they converted in say, 2012 - fundresearch.fidelity.com/mutual-funds/performance-and-risk/921935102?type=o-NavBar[My Previous Post - I would think it locks up the date of conversion retail AUM. Of course, it also locks out future retail inflows. No? So, I think conversion is a good idea for sponsor if a fund is seeing or anticipating steady outflows from retail. May be it is a sign that markets are at peak and sponsor wants to lock in AUM.] Edit: I looked at the four JPM funds mentioned. Cumulatively they do not have meaningful amount of AUM in retail class. I did not check the institutional class minimums or AUM. But some of these funds appear to have classes designed for pension plans. So, I do not know what their actual motivation is for the conversion. I am not convinced by their quoted reason for conversion stated in the OP. BTW, OEFs at their discretion can also by prospectus do in-kind (and potentially delayed) redemptions. I personally have no interest in those JPM funds and so I am not spending anymore energy looking into them or this conversion. chang , Though we may not have seen much in practice, I do not think anything in commercial law limits a sponsor's ability to close an ETF. I do like FBGRX / FBCG kind of offering, unlike the Vanguard same fund-different class offering of ETFs. The Fidelity kind allows institutions and retail to go to the vehicle that best suits their needs, without impacting the outcomes of one based on the actions of the other. I think with trillion dollar market cap companies being a common occurrence, capacity should not be a problem if that is what you are concerned about. However, managers' execution mental scale could have limitations and in that case, solution to the high AUM is the high AUM - it will correct itself. May be you can elaborate your apprehensions so I may be able to see factors you are thinking that I have not considered.
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Post by yogibearbull on Aug 15, 2021 1:21:09 GMT
anitya , ETF doesn't segregate assets from retail and institutional/authorized-participant investors. Regardless of how the ETF got assets, some authorized-participant(s) in theory can empty the entire ETF - although at some point, the ETF may refuse redemption orders. So, I am not seeing the locked up assets within the ETF. There have been examples of disruptions in creation/redemption mechanisms and then the ETF trades at premium/discount like CEFs. This has happened for some foreign ETFs when a foreign country suddenly imposes currency exchange controls. It also happened a few years ago for GLD when the demand was so high that the sponsor ran out of authorized shares and it took a few weeks to get authorization for more shares from the SEC - that was really poor planning by the sponsor. Years ago, when the muni market was under stress and became illiquid, MUB traded at discount for several weeks. The creation/redemption mechanisms are essential for keeping ETF prices close to NAVs, and when they stop working, ETFs becomes more like CEFs.
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Post by anitya on Aug 15, 2021 1:39:40 GMT
yogibearbull , I just edited my previous post to add more information. Regarding my retail AUM lock up comment - nothing enlightening or secrete information - simply a practical application. Retail investors do not and have no reason to redeem through APs they simply sell on the open market. Where as with an OEF, they can withdraw their AUM. Yes, there can be big discounts for ETFs in disruptive markets. That is why, I do not keep my cash equivalents I want to deploy later in ETFs - I just stay mindful of gates and other liquidity restrictions of money market OEFs. Even if markets are not stressed, if the ETP temporarily (or permanently) closes and is not creating new shares / units and is popular, premiums can sky rocket (and is a good time to cash out and look for alternatives). AMJ was a good example. I am sure you remember all of the above, I am just saying it for completeness. P.S.: I do no want to brag how much I profited from the above because then I will also have to tell you all the stupid things I did!
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Post by chang on Aug 15, 2021 7:46:24 GMT
Just my opinion about active ETFs, and I sense that I am in the minority: - An active ETF (paired with an OEF) probably means neither fund will ever close, as noted above. Success may lead to bloat or sluggishness.
- ETFs are better suited for trading, while OEFs are not suited to trading at all. Hence, the ETF may lead to more short-term traders coming in. That may not cause any harm, since the ETF structure is amenable to trading. But it just doesn't seem like a good thing to me.
- The manager now must divide his attention between the OEF and the ETF. These will undoubtedly be very similar, but of course not identical. Managing the ETF (with its traders) seems like a potential distraction for the manager, although hopefully the traders will bear the burden of the dirty work.
- Money flowing into the ETF is money not flowing into the OEF. Therefore, OEF shareholders may not benefit from potential expense reductions that might otherwise have been enacted based on fund assets. (You might well say that's a reason to switch from the OEF to the ETF, if the latter is cheaper.)
I see no problems whatsoever with ETF classes of index funds (or quasi-index funds like DFA's), nor active funds like MINT which are basically MM alternatives. But I wouldn't want a truly actively-managed OEF to branch into an ETF. In fact, I would probably exit it.
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Post by paulr888 on Aug 15, 2021 12:04:11 GMT
Chang .. I understand ETFs are more tax efficient but I don't have much in a taxable account right now so that is not important to me at this instant. All through my working days my 401K options have been mutual funds. I generally gravitate to what I am familiar with. What bugs me about ETFs is that someone always seems to coming out with marketing on newer, better, smarter versions. I don't want all those options. The number of choices are overwhelming. I feel like a kid in a candy shop. Oh look what they are making today. Give me the old fashioned mutual funds. Finally my impression is that a PM will generally spend more time managing an OEF than an ETF. Give me the investment vehicle that gets mare attention and TLC from the PM.
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Post by yogibearbull on Aug 15, 2021 12:43:43 GMT
World is changing and ETFs are coming, like it or not. Once fractional-trading catches on, ETFs are also coming to 401k/403b. Since 1990 start, ETFs are about 18.35% 35% (Edited*) of total fund AUM. In a few years, ETF AUM may overtake OEF AUM. Nontransparent active equity ETFs are brand new. Several styles were approved only in 2019 and they started coming out in 2020. Some OEF to ETF conversions have also started (topic of this thread). IMO, they are too expensive. Most so far are clones of existing OEFs (PR angle) and have same/similar portfolio managers. But this doesn't have to be and may change later. Many similarly named funds offered in different wrappers can have different managers (OEFs, ETFs, funds run under another party's label, separate accounts, funds for insurance and annuity products). Note that Pimco active bond ETFs MINT and BOND are no longer promoted as alternatives to their OEF cousins PSHAX and PTTAX, respectively, as they now differ in some aspects of portfolio management. I use both OEFs and ETFs - OEFs for longer-term holdings ("core"), ETFs for shorter-term holdings ("explore"). ETFs do have features that lead to tax-efficiency, lower ERs, continuous trading and some of these can be seen advantages or disadvantages depending on the point of view. I am not bothered by AUMs - that depends on the category and type. Bond universe is multiple times larger the stock universe, and when it comes to indexing, bigger the better. I do avoid tiny and newer funds. *US fund AUMs, 12/31/20: OEFs 80.45%, ETFs 18.35%, CEFs 0.94%, UITs 0.26% www.icifactbook.org/21_fb_ch2.html
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Post by chang on Aug 15, 2021 12:54:20 GMT
paulr888 I share the same sentiment as you do, though my skepticism of many ETFs has to do with the creation of indexes to suit whims. ETFs were originally conceived to track indexes, but soon the number of new indexes exploded. Indexes to track uranium, low volatility, high volatility, the Internet of Things, obesity, millennial themes, fishing, video games, cannabis, hydrogen … you name it! Some of these might have a purpose, but so many of them just look like scams.
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Post by steelpony10 on Aug 15, 2021 16:05:03 GMT
chang , paulr888 , Why don’t you just plot what you have that’s classified like value, growth, blend against an index like SPY or others from legitimate houses like Vanguard in other categories. Look at volatility under duress, expenses , long term return etc. to see if anything is attractive and how the fund managers did vs. it’s index. I had several “minor league” portfolios for years to compare to my real holdings. My personal conclusion is most indexes have better long term returns and are less expensive which is pretty much held as fact now. The big advantage managed portfolios have is the ability to adjust holdings during long term market stress. If that’s worth paying for ok I suppose. Indexing really eliminates duplication. I just stash excess income to counter long term market stress. Maybe 1999-2010 qualifies as what I mean by long term or 2007-the present.
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Post by anitya on Aug 15, 2021 17:19:26 GMT
World is changing and ETFs are coming, like it or not. Once fractional-trading catches on, ETFs are also coming to 401k/403b. Since 1990 start, ETFs are about 18.35% 35% (Edited*) of total fund AUM. In a few years, ETF AUM may overtake OEF AUM. Nontransparent active equity ETFs are brand new. Several styles were approved only in 2019 and they started coming out in 2020. Some OEF to ETF conversions have also started (topic of this thread). IMO, they are too expensive. Most so far are clones of existing OEFs (PR angle) and have same/similar portfolio managers. But this doesn't have to be and may change later. Many similarly named funds offered in different wrappers can have different managers (OEFs, ETFs, funds run under another party's label, separate accounts, funds for insurance and annuity products). Note that Pimco active bond ETFs MINT and BOND are no longer promoted as alternatives to their OEF cousins PSHAX and PTTAX, respectively, as they now differ in some aspects of portfolio management. I use both OEFs and ETFs - OEFs for longer-term holdings ("core"), ETFs for shorter-term holdings ("explore"). ETFs do have features that lead to tax-efficiency, lower ERs, continuous trading and some of these can be seen advantages or disadvantages depending on the point of view. I am not bothered by AUMs - that depends on the category and type. Bond universe is multiple times larger the stock universe, and when it comes to indexing, bigger the better. I do avoid tiny and newer funds. *US fund AUMs, 12/31/20: OEFs 80.45%, ETFs 18.35%, CEFs 0.94%, UITs 0.26% www.icifactbook.org/21_fb_ch2.html+1
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Post by anitya on Aug 15, 2021 17:35:49 GMT
In a multi fund company, traders do not report to portfolio managers and thus no distraction for the PMs. Also, trades are generally not executed for each fund and ETF separately in these companies. Some fund managers like to execute some of their trades, which I presume is more out of choice than necessity. In this respect, just imagine ETF as a separately managed account.
The above may not apply to places like Artisan.
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Post by paulr888 on Aug 15, 2021 18:07:59 GMT
chang , paulr888 , Why don’t you just plot what you have that’s classified like value, growth, blend against an index like SPY or others from legitimate houses like Vanguard in other categories. Look at volatility under duress, expenses , long term return etc. to see if anything is attractive and how the fund managers did vs. it’s index. I had several “minor league” portfolios for years to compare to my real holdings. My personal conclusion is most indexes have better long term returns and are less expensive which is pretty much held as fact now. The big advantage managed portfolios have is the ability to adjust holdings during long term market stress. If that’s worth paying for ok I suppose. Indexing really eliminates duplication. I just stash excess income to counter long term market stress. Maybe 1999-2010 qualifies as what I mean by long term or 2007-the present. My portfolio is designed to throw off 4% yield that automatically accumulates for me and allows me to fund my retirement very simply. I doubt I can design a diversified ETF portfolio that does that. Besides that, I simply do not care for, have no interest in researching and buying ETFs except I do own SCHD. That's about it. After excluding my bond OEFs, bond CEFs, foreign developed and EM funds, REITs, BDCs and long/shot commodities which I would never ETF, the only remaining part of my portfolio subject to ETFs for me would be my US equities. I own 5 mutual funds + SCHD. Over the years, I have looked for better performers in ETF land and never found them. For less than 15% of PV to try to find and force a replacement for something that is supposedly the next coming is just not worth it. I am satisfied with my current holdings that have evolved over the 8 years of my retirement. If it's not broke, I am not going to fix it. What I do like about mutual funds is established funds and 10 year performance is a real plus for me. This keeps me content and not looking for better. ETFs seem to have a new flavor every month. Welcome to Baskin Robbins of the investment world. Try this new product. Always a new twist to entice a change.
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Post by steelpony10 on Aug 15, 2021 18:30:38 GMT
paulr888 , As mentioned if anyone wants to dismiss index funds and are happy with their paid managers that’s fine. For others checking some indexes against their current holdings may be an eye opener.
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Post by Chahta on Aug 15, 2021 20:31:25 GMT
paulr888 , As mentioned if anyone wants to dismiss index funds and are happy with their paid managers that’s fine. For others checking some indexes against their current holdings may be an eye opener. I hold all but 1 equity index funds. The 1 would not be held if the manager didn’t earn his keep.
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Post by anitya on Aug 15, 2021 22:21:07 GMT
While SCHD is not an index fund, as that term is commonly used, I would put any strictly rules based fund (ETF) also in the index fund category. SCHD falls into that category and there are several others. Many index funds are successful (on a total return basis) but there are also many that are not. S&P 500, QQQ, etc are commonly discussed, held successful index funds. Some international equity index funds have lots of AUM but unimpressive total return. If I said in 2001 through 2008 that QQQ is a good index fund to own forever, you would have chased me out of town. I could be wrong but the only time tested successful and easy to own index funds are the cap weighted S&P 500 index and its clones like the cap weighted total market index.
Disclosure: My own QQQ position happens to be three times bigger than my SPY position. I also own significant MOAT, which I do not consider as an index fund but I consider the SCHD I own as an index fund.
P.S.: I am not picking anybody's side because I do not consider there is the right answer that applies to everybody. I understand each of your POV - I imagine the context if one is not clearly stated.
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Post by steelpony10 on Aug 15, 2021 23:18:25 GMT
anitya , Money has been flowing into indexes for years. I can’t believe it’s only the cost. There’s still a great deal of investable funds on the sidelines after a year plus of this current market dilemma. Looks similar to everyone going to low cost or no cost trades. Follow the leader or lose business. Many people don’t like change though. We’ll see what lies ahead for the majority of new and younger investors.
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Post by chang on Aug 16, 2021 2:38:50 GMT
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Post by Chahta on Aug 16, 2021 3:26:17 GMT
I would say that SCHD may not be an index fund in the strictest sense because of the way its holdings are selected. Maybe SCHD is better described as measured against the Dow100 dividend index.
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Post by anitya on Aug 16, 2021 5:05:31 GMT
Yes, in a literal and scientific sense. Though the common man seem to use that term to mean less sophisticated / simpler indices. May be I am not giving them enough credit. Edit: As I finished reading the thread, I realized my reply was not necessary given Chahta's reply.
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Post by chang on Aug 16, 2021 6:22:35 GMT
I'm not sure I see the distinction. Per Vanguard: "An index mutual fund or ETF (exchange-traded fund) tracks the performance of a specific market benchmark—or "index," like the popular S&P 500 Index—as closely as possible." investor.vanguard.com/index-funds/what-is-an-index-fundIf you mean that some indexes are not constituted using a market-cap weighting, I don't think that has any significance. As long as an index is constituted in some algorithmic way, a fund that tracks it is an index fund. Actually, as indexes go, the DJIA strikes me as one of the flakiest ... and constantly changing.
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Post by roi2020 on Aug 16, 2021 7:07:13 GMT
Actually, as indexes go, the DJIA strikes me as one of the flakiest ... and constantly changing. It doesn't make sense to weigh stocks by their prices instead of their actual market valuation.
The DJIA consists of only 30 stocks and is not a good representation of the "market". I wish the media would stop using the DJIA as a benchmark.
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Post by yogibearbull on Aug 16, 2021 12:57:06 GMT
SCHD is a factor-based ETF. These are based on existing or custom indexes that are not market-cap based. All rules are at index construction level and the ETF has a fixed rebalancing schedule. As noted, SCHD is based on DJ US Dividend 100 Index; it rebalances quarterly. It is passive in that beyond handling ETF creations/redemptions, the portfolio doesn't change between rebalancing. Some call it semi-active/passive. It is definitely indexed. At one time, there was a long court fight between WisdomTree and Research Affiliates (RAFI) on who can use what terms but that was settled and the ETF world has moved beyond those issues. connect.rightprospectus.com/Schwab/TADF/808524797/SP?site=Funds#
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