Section 351 ETF conversion: what the Snowball ETF filing reveals

An April report said Gabe Plotkin plans to provide most of the initial securities for the forthcoming Snowball ETF through a Section 351 exchange. That makes for an easy headline: a hedge-fund manager associated with the meme-stock era is moving personal assets into an ETF.

The more useful questions are what a Section 351 ETF conversion does, what the public filing confirms, and what a buyer would own after the launch. The filing answers the last question only in outline. It describes an active fund of 15 to 25 stocks, but it does not name the seed portfolio.

What is a Section 351 ETF conversion?

Section 351 of the US tax code can allow one or more owners to contribute property to a corporation in exchange for its shares without recognizing gain or loss at that moment. An ETF is normally organized as a regulated investment company, so the rule can be used to exchange an existing basket of securities for ETF shares when the transaction meets its conditions.

In plain terms:

1. An owner contributes stocks rather than selling them for cash.
2. The owner receives shares of the new ETF.
3. A qualifying exchange does not trigger the embedded capital gain at the point of conversion.
4. The gain is deferred, not erased. Under the carryover-basis rule, the basis in the ETF shares generally starts with the basis of the assets contributed.

The details matter. The transferors generally need to control at least 80% of the fund immediately after the exchange. Rules for transfers to investment companies also test whether the transaction creates diversification. A contributed portfolio can satisfy the relevant diversification test when no single issuer exceeds 25% and no five issuers together exceed 50% of its value. The regulation contains further rules for multiple transferors, government securities and planned transactions.

This is US federal tax law, not a do-it-yourself portfolio move. Eligibility and the eventual tax result depend on the facts. European investors cannot use it to turn a personal portfolio into a UCITS ETF.

Why the structure is getting attention now

The Snowball story is one example of a wider launch pattern. Fund sponsors and wealth managers are using Section 351 exchanges to move existing, appreciated portfolios into newly formed ETFs. That opens the ETF wrapper to private portfolios that would otherwise face a capital-gains event before reinvestment.

The policy position may change. A July 2026 report said US tax-policy officials were reviewing Section 351 ETF transactions alongside other tax-focused strategies. As of 28 July, there was no published rule or guidance prohibiting qualifying exchanges. The statutory rules still apply, and any eventual change would need to be read on its own terms.

What the Snowball ETF filing confirms

The fund's March 24 registration statement names CPD as the planned NYSE ticker and Gabe Plotkin as portfolio manager. It describes:

• an actively managed equity ETF seeking long-term capital growth;
• primarily US companies, with a general focus on large capitalizations;
• a portfolio of 15 to 25 companies selected through fundamental research and valuation;
• permission to borrow and to use options, FLEX options and total-return swaps;
• full portfolio holdings published on the fund's website each business day after launch.

The fee table is unusual. It lists a 1.50% management fee and an estimated 0.83% interest expense on borrowings, producing estimated total annual operating expenses of 2.33%. Its standard cost example is $236 in the first year on a $10,000 investment, assuming the filing's stated return and expense assumptions.

The filing had no performance record because the fund had not begun operations. As of 28 July 2026, it still did not reveal the contributed stocks. The report about Plotkin's personal assets is separate from the filing, which neither identifies the seed investor nor gives the seed portfolio.

That distinction matters. A tax-efficient way to enter an ETF says nothing about whether the ETF is a good investment for the next shareholder.

What 15 to 25 stocks usually means in practice

We looked for existing US equity ETFs that most closely match the disclosed shape of Snowball: actively managed, 15 to 25 reported positions, at least 90% in equities, a broad S&P 500 or Russell 1000 benchmark, and no sector mandate. Eight funds met those conditions in the ETF Trace database: AKRE, AIUP, BCHP, LSGR, NITE, PRCS, RVER and USSE.

Their latest reported holdings show:

• 69.6% median top-10 weight. Ten companies carry more than two-thirds of the typical fund.
• 13.6% median largest position. One company can be close to one-seventh of the portfolio.
• 14.3 effective stocks. Although the funds report a median of 20.5 positions, their concentration is equivalent to about 14 equally weighted holdings.
• 0.65% median stated expense ratio among the seven with a figure available. Snowball's 1.50% management fee is more than twice that median, before its estimated borrowing expense.

None of those figures predicts Snowball's eventual weights. They show the range implied by the structure. A 15-to-25-stock mandate gives the manager room to make individual positions matter.

Most of the stocks may already be in your index fund

Concentrated does not necessarily mean different. We compared each of the eight funds with VOO, a broad S&P 500 tracker.

At the median, 86.9% of the concentrated fund's weight was in companies VOO already held. The formal pairwise overlap was lower, at 24.7%, because VOO holds those companies at smaller weights. The first number answers, "How much of this fund is made of names I already own?" The second asks, "How much of the two funds has the same name at the same weight?"

That is the likely portfolio role of a concentrated active ETF beside an index core. It may add few new companies while increasing the weights of a manager's selected names. Buying it alongside an S&P 500 fund can be a deliberate active tilt, but it is not automatically additional diversification.

What to inspect if Snowball launches

The daily holdings should make the important questions answerable:

1. Seed portfolio versus continuing strategy. The opening basket may reflect the assets contributed for the conversion. Watch whether it changes after launch.
2. Top position and top-10 weight. The number of stocks alone understates concentration when a few positions are much larger than the rest.
3. Overlap with existing funds. Measure the combined company weights across the whole portfolio. The list of names in the new fund is insufficient.
4. Borrowing and derivatives. The filing permits both. Actual use will determine whether the estimated interest expense and leverage risk become material.
5. Cost against the active bet. A 1.50% management fee requires 1.50 percentage points of annual gross outperformance just to offset that fee, before trading, borrowing and taxes.

The Section 351 story explains how assets can enter the wrapper. The holdings will explain what public buyers are paying to own.

ETF Trace will be able to run that look-through once the portfolio is public and the fund is available in the dataset. Until then, any list of "likely Snowball holdings" would be speculation.

About the analysis: Snowball terms come from the registration statement dated 24 March 2026. The comparison set contains AKRE, AIUP, BCHP, LSGR, NITE, PRCS, RVER and USSE. Figures use each fund's latest reported holdings available in ETF Trace, dated 31 January to 31 March 2026. Effective holdings equal one divided by the sum of squared normalized position weights. Pairwise overlap is the sum of the smaller normalized weight for each shared security. Holdings change over time. This article is educational information, not investment or tax advice.