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Innovations in product structure have allowed ETFs to expand beyond the traditional, open-end fund structure most associated with ETFs. So what does structure mean? We can start by thinking of structural differences that exist first at the highest level - based on the laws under which the products are registered: under the 1940 Investment Company Act or the Securities Act of 1933. Each structure has unique exposure, risk and tax implications. These nuances may make some structures and products more appropriate for some investors than others.


1940 Act ETFs
• Open-End Funds - The vast majority of ETFs are structured as open end investment companies and operate under the ‘40 Act regulations.
• Unit Investment Trust (UIT). While some UITs are the biggest ETFs in the industry, they are also some of the oldest. ETF structures have evolved into open-end funds, but still this legacy structure is important to understand when comparing similar ETFs.

1933 Act ETFs
•There are several types of 1933 Act exchange traded products.
•It’s more difficult to generalize these products by type, making it even more important to evaluate the structure of them at a product level.
•Examples of structures: Grantor Trust, Limited Partnerships and Exchange Traded Notes

Focusing on Open-End Funds and Grantor Trusts:
 
1.Open-End 40 Act Fund - Vast majority of ETFs are structured as open end investment companies and operate under the ‘40 act regulations.
          •Rules of diversification make it challenging to manage a concentrated portfolio - such as a commodity fund like gold

2.Grantor Trust - Many single commodity ETFs are structured as grantor trusts; These products are required to hold a finite number of assets, and cannot receive income, which is why this structure is typically suited for exposures such as commodities (like silver or gold bars). Owners of these trusts own a corresponding share of assets in the trust. The trusts issue shares representing fractional undivided beneficial interests in its net assets. Investors typically receive grantor trust letters with their tax information instead of being included on their 1099’s.