Why seed an ETF in-kind only to sell a few months later?
Selling should undo the tax benefits of seeding in-kind... right?
Twin Oak Active Opportunities ETF (TSPX) launched in February 2025 with around $440,000,000 in assets.
Justina Lee wrote about it for Bloomberg last week. So did Matt Levine.
TSPX was seeded in-kind with DDOG, SNOW, and 3 ultra-short income ETFs.
IRC Section 351 allows investors to seed ETFs in-kind (provided they meet diversification and other requirements), effectively enabling them to reallocate their portfolios without paying tax, which I previously called a “get out of jail free” card.
I wrote a (meme) book about it: The Adviser’s Guide to Seeding an ETF In-Kind
Enough people reached out about TSPX that I decided to take a closer look.
⚠️ 27 images follow. Open this article in Substack or your browser ⚠️
I haven't seen much discussion vetting how the carryover basis works, specifically, is the tracing method allowed or is the taxpayer stuck with aggregate basis? What authority is everyone relying on for assuming basis in property doesn't have to be aggregated and spread among ETF shares received (such that 351 ETF shares all have equal basis)? The 'basis issue' is mission critical, particularly for those who are levering up to address diversification requirements with the plan to redeem high basis shares after the fact. I just haven't seen a deep dive on this and it doesn't seem as though the basis issue is well settled under IRC 358. Am I missing something?