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").
How it Works
Investors contribute diversified securities to a newly formed ETF in exchange for ETF shares. These contributions are independently reviewed to ensure they meet special rules, diversification, and control requirements outlined in the Internal Revenue Code.
To cover just 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, and 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.
Operational Timeline
Introduction to the 351 ETF Exchange
Over the past few decades, investors have come to appreciate the ETF structure for numerous reasons—intraday liquidity, low fees, and tax efficiency. These features have led to investors voting with their dollars, and flows have been consistent from traditional high-fee, tax-inefficient vehicles into the ETF structure.
To borrow and alter a quote from Marc Andreessen, we believe that "ETFs are eating the asset management industry (in a good way!)."
However, while investors appreciate the ETF's inherent tax efficiency, they often hold legacy stock positions with big capital gains. Selling their holdings and transitioning to an ETF would require a hefty tax bill.
Is it possible to transition their low-basis investments into the ETF structure tax-efficiently?
Section 351 ETF Conversion FAQs
Common questions and answers related to Section 351 ETF Conversions.
351 ETF Exchange – Things to Know
Qualifications, forms, and operational workflow for working with Cambria on 351 ETF Exchanges.
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.
Upcoming Fund Launches
Next anticipated launch dates:
Cambria Global Equal Weight 2 ETF (GEQ) - June 9th, 2026
April 30th, 2026
- Coordinate Final Asset Contributions
May 12th, 2026
- Paperwork Must be Completed
June 9th, 2026
- Trading set to begin
Looking ahead:
A second 351 fund launch is anticipated in November 2026
To determine if this Fund is an appropriate investment for you, carefully consider the Fund’s investment objectives, risk factors, charges and expenses before investing. This and other information can be found in the Fund’s full and summary prospectus which may be obtained by calling 855-383-4636 (ETF INFO) or visiting our website at www.cambriafunds.com. Read prospectus carefully before investing or sending money.
The Cambria ETFs are distributed by ALPS Distributors Inc., 1290 Broadway, Suite 1000, Denver, CO 80203, which is not affiliated with Cambria Investment Management, LP, the Investment Adviser for the Fund.
Investing involves risk, including potential loss of capital.
All Cambria ETFs are actively managed.
GEQ: There is no guarantee that a Fund will achieve its investment goal. Investing involves risk, including the possible loss of principal. The Fund avoids market-capitalization-weighting, which may result in higher portfolio turnover and increased transaction costs compared to market-capitalization-weighted strategies. This approach may also lead to greater exposure to smaller companies, which typically exhibit higher volatility and may be less liquid than larger companies. The underlying holdings of the Fund may be leveraged, which will expose the holding to higher volatility and may accelerate the impact of any losses. International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Investments in smaller companies typically exhibit higher volatility. Narrowly focused funds typically exhibit higher volatility. There is no guarantee dividends will be paid. Diversification may not protect against market loss.
There is no guarantee dividends will be paid. Diversification may not protect against market loss.
GEQ is actively managed.
GEQ is new and has limited operating history.
GEQ is currently not available, the anticipated launch date is June 9, 2026