Section 351 ETF Conversion
ETFs have evolved the investment landscape with notable benefits like intraday trading, lower fees, transparency, and impressive tax efficiency. But what about investors who hold legacy investment positions with significant gains? Is there a way to transition into an ETF without facing a large tax bill? There is, with a 351 ETF Exchange… A contribution of appreciated securities to a new ETF in a non-recognition transaction under Section 351 of the Internal Revenue Code (a “351 Transaction”).
Upcoming Fund Launches
Anticipated November 2026
How it Works
Investors contribute diversified securities to a newly formed ETF in exchange for ETF shares.
Contributions are independently reviewed to ensure they meet special rules, diversification, and control requirements outlined in the Internal Revenue Code.
A few of these rules and requirements:
- No single holding can be greater than 25% of the total portfolio being contributed
- The top 5 positions cannot make up more than 50% of the portfolio’s net asset value
- Investors are considered to have ‘control’ with over 80% of the vote and value of the ETF upon its launch.
- If the special rules and requirements are met, this mechanism allows the portfolio of securities to be contributed to the ETF in exchange for ETF shares without an immediate taxable event.
Because ETFs typically don’t distribute capital gains, investors don’t face taxes until they sell their ETF shares, allowing for better control over the timing of the tax event.
Interested in Participating?
Investors that wish to participate and contribute their securities to a newly formed ETF in exchange for ETF shares will have an opportunity to do so prior to the launch of upcoming Cambria ETFs.
Please reach out to 351@cambriainvestments.com to indicate interest.
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