Content and data provided by various third parties and Fidelity − Terms of Use | Help/Glossary
Research > ETFs > ETF / ETP Commentary > 

ETF Prime: Tax Strategy Behind 351 Exchange ETFs Draws Scrutiny

BY | ETF Database
9:31 am ET 10/07/26 | 17 VIEWS
A Treasury Department warning on the tax strategy behind 351 exchange ETFs led this week’s ETF Prime. Host Nate Geraci and Cinthia Murphy, director of research at TMX VettaFi, previewed the top storylines for the fourth quarter. Jeff Klingelhofer, managing director and portfolio manager at Aristotle Pacific, joined later.Key Takeaways: The Treasury Department’s 351 exchange warning isn’t enforcement, but Murphy expects activity to slow. ETF inflows are nearing $1.6 trillion for 2026, already topping last year’s record of nearly $1.5 trillion. Aristotle Pacific’s three active bond ETFs hold nearly $150 million after launching in late July. Section 351 of the tax code lets investors swap stock for ETF shares without paying capital gains taxes right away. Murphy called the Treasury Department’s recent guidance on the practice a warning rather than enforcement, but a red flag. She cited Bloomberg data showing about $22 billion in ETFs have used 351 exchanges. Murphy said the concern is abuse, not normal use. Her examples include investors who contribute stock and quickly redeem, or an ETF that overnight becomes a completely different fund. Murphy and Geraci both expect 351 activity to slow while issuers consult tax and legal counsel. Murphy was also skeptical of new filings for ETFs that would let investors bet on team performance through sports futures. She called the funds “a solution looking for a problem” because they fill no portfolio need. Amplify’s pending professional sports ETF, which holds public and private companies, offers a more direct route, she noted.Texas Exchange & Record ETF InflowsMurphy welcomed the new Texas Stock Exchange, calling it “a very cool deal” for ETF issuers. Funds can already trade anywhere, but issuers now have another primary listing venue to choose from. More competition should improve market maker incentives, trading efficiency, and pricing, which she said benefits investors. On flows, Murphy and Geraci noted that 2026 ETF inflows are nearing $1.6 trillion, topping last year’s record. Murphy calculated that flows average $5.5 billion to $5.6 billion per day, which would put the year at $2.05 trillion. See more: Baron Crosses $1 Billion ETF Mark in Under a Year Klingelhofer discussed Aristotle Pacific’s three active fixed income ETFs, which launched in late July and hold nearly $150 million. They are the Aristotle Core Plus Income ETF (ARCP), the Aristotle Multi-Sector Income ETF (ARMS), and the Aristotle Short Term Income ETF (SDUR). He argued that bond benchmarks like the Bloomberg U.S. Aggregate Bond Index ignore about half of the market’s opportunities. Those include off-balance-sheet AI data center financings. Yields have also returned, with core plus strategies in the mid-6% range and multisector near 7%.For more ETF Prime podcast episodes, visit our ETF Prime Channel.

More Commentary

Maximize Yield in Active High Yield Bond ETF AHYB
BY | ETF Database
11:54 am ET 10/07/26 | 16 VIEWS
T. Rowe Price Ultra Short-Term Bond ETF TBUX Up Almost $1 Billion YTD
BY | ETF Database
10:52 am ET 10/07/26 | 21 VIEWS
NEOS Grows ETF Lineup With New Silver Income Fund
BY | ETF Database
9:30 am ET 10/07/26 | 25 VIEWS
View more Commentary

Search Commentary

Enter Keyword(s)
Filter Results

Performance data shown is past performance and is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. Yield and return will vary, therefore you have a gain or loss when you sell your shares. For standard quarterly performance, go to the fund's Snapshot page by clicking on the ETF/ETP's symbol.

ETFs may trade at a premium or discount to their NAV and are subject to the market fluctuations of their underlying investments.

For iShares ETFs, Fidelity receives compensation from the ETF sponsor and/or its affiliates in connection with an exclusive long-term marketing program that includes promotion of iShares ETFs and inclusion of iShares funds in certain FBS platforms and investment programs. Please note, this security will not be marginable for 30 days from the settlement date, at which time it will automatically become eligible for margin collateral. Additional information about the sources, amounts, and terms of compensation can be found in the ETF's prospectus and related documents. Fidelity may add or waive commissions on ETFs without prior notice. BlackRock and iShares are registered trademarks of BlackRock, Inc. and its affiliates.

FBS receives compensation from the fund's advisor or its affiliates in connection with a marketing program that includes the promotion of this security and other ETFs to customers ("Marketing Program"). The Marketing Program creates incentives for FBS to encourage the purchase of certain ETFs. Additional information about the sources, amounts, and terms of compensation is in the ETF's prospectus and related documents. Please note that this security will not be marginable for 30 days from the settlement date, at which time it will automatically become eligible for margin collateral.

News, commentary (including "Related Symbols") and events are from third-party sources unaffiliated with Fidelity. Fidelity does not endorse or adopt their content. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use.

Any data, charts and other information provided on this page are intended to help self-directed investors evaluate exchange traded products (ETPs), including, but limited to exchange traded funds (ETFs) and exchange traded notes (ETNs). Criteria and inputs entered, including the choice to make ETP comparisons, are at the sole discretion of the user and are solely for the convenience of the user. Analyst opinions, ratings and reports are provided by third-parties unaffiliated with Fidelity. All information supplied or obtained from this page is for informational purposes only and should not be considered investment advice or guidance, an offer of or a solicitation of an offer to buy or sell a particular security, or a recommendation or endorsement by Fidelity of any security or investment strategy. Fidelity does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating ETPs. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use. Determine which securities are right for you based on your investment objectives, risk tolerance, financial situation and other individual factors and re-evaluate them on a periodic basis.

Before investing in any exchange traded product, you should consider its investment objective, risks, charges and expenses. Contact Fidelity for a prospectus, offering circular or, if available, a summary prospectus containing this information. Read it carefully.