Thinking About Starting an ETF? Names Matter

Many Key Bridge clients have questions about launching ETFs and mutual funds, and the Names Rule is one of the first things they should understand. Although formal Names Rule monitoring and testing may be performed at the trust level, investment advisers should still understand the rule because they design the investment strategy, manage the portfolio, and often provide the information needed to determine whether individual investments qualify for the fund’s 80% basket.

The Basic Rule

Rule 35d-1 generally requires a fund whose name suggests a focus in a particular type of investment, industry, geography, or investments with particular characteristics to adopt a policy to invest at least 80% of its assets consistently with that focus. The 2023 amendments expanded the rule to cover additional terms describing characteristics of investments or their issuers. The SEC staff’s updated 2025–26 Names Rule FAQs provide useful examples of how seemingly small naming decisions can change the compliance analysis. A few short examples:

• Growth Fund: Generally requires an 80% policy tied to investments exhibiting growth characteristics.
• High Yield Bond Fund: Generally requires an 80% policy tied to high-yield securities.
• Tax-Sensitive Fund: Generally does not require an 80% policy because the term describes a portfolio-wide objective rather than characteristics of individual investments.
• U.S. Treasury Money Market Fund: The “U.S. Treasury” modifier matters. SEC staff states that such a fund would generally need an 80% policy tied to U.S. Treasury securities.

The lesson is straightforward: consider the Names Rule before the fund name is finalized. A name that sounds attractive from a marketing perspective may also create an ongoing portfolio-management and testing obligation. Before launch, the adviser, fund counsel, trust, and other service providers should understand what the name communicates to investors, which holdings qualify, and how those classifications will be monitored and documented.

Takeaways

• A fund’s name can create substantive portfolio-management and compliance obligations. Small differences in terminology can change whether an 80% investment policy is required. Consider Names Rule implications during product design, not after launch.
• Even where testing occurs at the trust level, the investment adviser should understand how securities are classified and whether the portfolio remains consistent with the fund’s name.