List of Exchange Funds for Concentrated Positions | Cache (2024)

When you hold a lot of your net worth in a single publicly traded stock, an exchange fund can be a good way to diversify your portfolio tax-efficiently. However, there can also be a lot for investors (and even advisors) to learn before they take the plunge. Most importantly: Who are the main exchange fund providers, and what do they offer?

We created a list of exchange funds so you can quickly identify potential providers. Even though each firm below offers an exchange fund, they are all slightly different from each other, so it’s worth taking a closer look. There’s the team at Eaton Vance, who brought exchange funds to the mainstream in the 1970s. Morgan Stanley, which acquired Eaton Vance in 2021, is now seen as a leading exchange fund provider. Goldman Sachs also offers exchange funds to its high-net-worth clientele.

More recently, modern brokerages like Cache have joined traditional investment banks by offering exchange funds to a much broader audience for the first time.

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What do exchange fund providers do?

To understand the role of providers, it’s useful to know what exchange funds are and how they work.

In a nutshell, they allow you to pool your concentrated stock with other investors to create a diversified fund. Instead of diversifying by selling stock and triggering capital gains taxes, an exchange fund lets you and those other investors swap your stock for a pro-rata ownership share in the fund. After seven years, each investor can withdraw a diversified basket of stock from the fund. Capital gains taxes continue to be deferred until you decide to sell your stock down the road – and your cost basis will be the same as it was for the stock you contributed.

To make this all happen, exchange fund managers wear a number of hats. Specifically, they:

• Identify and bring together investors with concentrated stock positions
• Set the investment objectives of the fund (typically benchmarked to a well-known index)
• Verify the eligibility of each investor
• Create allocations for each investor to build a diversified fund
• Oversee the legal and transactional elements of creating the fund
• Manage the fund toward its investment objectives
• Report performance to investors and regulators
• Facilitate transactions when shares are redeemed

Now that you know what they do, here’s a closer look at the list of existing exchange fund providers, including links to where you can learn more about each firm.

List of exchange fund providers

Eaton Vance Exchange Funds

Eaton Vance deserves a lot of credit for making exchange funds more widely available. While exchange funds and other like-kind exchanges have existed in some form since the 1930s, Eaton Vance obtained an IRS ruling in 1975 that allowed for wider adoption.

Following that ruling, firms like Goldman Sachs added exchange fund products as well. By the mid-2010s, these funds were only available through large investment banks, and Eaton Vance has been one of the biggest providers. It has managed more than $40 billion in exchange fund assets for investors with concentrated positions.

See Eaton Vance for more information.‍

Target Indexes: S&P 500, S&P 1500.

Morgan Stanley Exchange Funds

In 2021, Eaton Vance was acquired by Morgan Stanley. Together, they continue to offer exchange funds that allow investors to enjoy tax-deferred growth, reduce the risk of a concentrated position, and approximate the diversification and performance of broad index funds. See Morgan Stanley for more details about these product offerings.

Goldman Sachs Exchange Funds

Exchange funds from Goldman Sachs have been another way for investors to seek tax-deferred diversification. Run by its Asset Management division – and available only to registered investment advisors – Goldman has launched over 10 exchange funds that use indices like the Russell 3000 Index to track its investment objectives.

Find more details about what Goldman Sachs provides, inquire through Goldman Sachs Asset Management or an affiliated institution.

Target Indexes: Russell 1000, Russell 3000.

Cache Exchange Funds

A newer exchange fund provider, Cache offers exchange funds that cater to different investors and investment objectives. Founded by a former Uber engineer who had difficulty finding ways to diversify his company stock, Cache seeks to lower some of the eligibility and minimum investment barriers that sometimes prevent individual investors from participating in an exchange fund.

In creating funds meant to approximate the composition of the Nasdaq-100 Index, Cache is able to include stocks from tech companies that aren’t as desirable for exchange funds that seek to track the broader Russell or S&P indices. Here are a few more points of comparison:

The data for the key terms of other exchange fund providers are sourced from certain large institutional providers of exchange funds which Cache believes to be relevant competitors for its own exchange fund. However, key terms are not meant to be representative of any particular competitor or other provider of exchange funds. Cache makes no representation as to the accuracy of this information nor does Cache create an implication that such data has been updated as of any particular time from when such data was originally sourced.

How to choose an exchange fund provider

Exchange funds are a long-term investment for sophisticated investors. They can have a huge impact on your net worth, so it’s a good idea to do your research.

If you’re looking to reduce concentration risk by diversifying and you want to avoid tax drag on appreciated stock, these funds could be a useful tool for meeting your investment objectives. Goldman Sachs, Eaton Vance, Morgan Stanley, and Cache all offer slightly different approaches to exchange funds, so it may be worth talking to a financial advisor about which is best for you. Here’s a list of key questions to ask an exchange fund brokerage you’re considering:

• What is the minimum investment?
• Who is eligible?
• What’s your investment strategy – and which stocks does the provider look for?
• What are all the fees and expenses can I expect to pay when I’m invested in an exchange fund?

Note that the seven-year holding period is based on current tax regulations, so you’ll have the same long-term commitment with every exchange fund provider.

If there’s anything we can do to answer your questions or assess your eligibility for the Cache Exchange Fund, we’d be happy to talk. To start the conversation, just tell us a little more about your situation.

Disclosures

<p class="blog_disclosures-text">Material presented in this article is gathered from sources that we believe to be reliable. We do not guarantee the accuracy of the information it contains. This article may not be a complete discussion of all material facts, and is not intended as the primary basis for your investment decisions. All content is for general informational purposes only and does not take into account your individual circ*mstances, financial situation, or your specific needs, nor does it present a personalized recommendation to you. It is not intended to provide legal, accounting, tax or investment advice. Investing involves risk, including the loss of principal.</p>

<p class="blog_disclosures-text">Exchange funds are a passive investment vehicle designed to provide diversified exposure. They do not guarantee higher returns than their underlying stocks, and they are likely to fluctuate with market conditions. While exchange funds may be designed to track an index fund or ETF, it should also be noted that fund managers have limited ability to sell stock positions and rebalance the fund. Diversification reduces concentration risk, but it does not eliminate investment risk completely. It is still possible to lose principal when you participate in an exchange fund.</p>

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