KKM Financial's Essential 40 stock fund has been transformed into an ETF.

KKM Financial has transformed its Essential 40 mutual fund into an ETF, aligning with the trend among asset managers towards a more tax-efficient fund structure.

ETFs allow investors and financial advisors with taxable accounts to strategically create capital gains or losses, unlike mutual funds that can unexpectedly impose taxes on withdrawals or portfolio changes.

"According to Jeff Kilburg, founder and CEO of KKM and a CNBC contributor, the tax efficiency of an ETF compared to a mutual fund is significantly more advantageous. Many wealth advisors that he works with struggle with the capital gain distribution typical to a mutual fund."

Recently, the decline in the number of active equity mutual funds can be attributed to the conversion of many asset managers to ETFs, facilitated by a 2019 SEC rule change that allowed for active investment strategies within an ETF.

Numerous asset managers are advocating for the SEC to permit ETFs to be included as a distinct share class within existing mutual funds.

The Essential 40 fund, which is newly-converted from KKM, will trade on the Nasdaq under the ticker ESN. The fund's objective is to enable investors to "buy what they use" in a single equal-weighted fund, as stated by Kilburg. Its holdings include , , and , according to FactSet.

He stated that the U.S. economy would face difficulties if these companies did not exist.

The Essential 40 mutual fund, which was previously rated three stars by Morningstar, had its best relative performance in 2022, declining less than 11%, significantly better than the category average of approximately 17%, according to Morningstar.

During market downturns, equal-weighted funds often outperform market-cap weighted indexes. This year, they have been a popular strategy due to concerns about the market's reliance on the "Magnificent 7" stocks. As a result, the has attracted more than $14 billion in new investor funds, according to FactSet.

Before its conversion, the KKM fund had grown by approximately 16% year to date, with around $70 million in assets, as per FactSet.

The net expense ratio of the new ETF will be 0.70%, the same as the old mutual fund.