The Top 10 Most Surprising ETF Closures
With 1,477 ETFs now in existence, and new ones launching practically every week, we should start bracing ourselves for more ETF closures. After all, how many niche markets are truly left untouched, and just how many more ETFs targeting the same segments do we need?
So far this year, we’ve had 18 fund closures, and we’re on track to beat the 30 closures we had in 2011.
As I said, most of these shutterings were no surprises, such as the HOLDRS, which either shut or were “transitioned” to become Market Vector ETFs. Many HOLDRS were dinosaurs, having been created during the tech boom, just waiting to become extinct, like the Broadband, B2B and Internet Infrastructure HOLDRS.
There are others that many probably expected to close sooner or later, such as the Global X Fishing ETF (FISN), the AdvisorShares Dent Tactical ETF (which will be “reorganized” into another AdvisorShares ETF in September) and the Direxion Airline ETF (FLYX).
I still remember wondering back when FLYX launched if Direxion would have been better off had it launched an inverse airline ETF.
Surprise, Surprise
Still, a handful of closures left me wondering what went wrong, as I would have expected more investor interest in these funds and so didn’t expect their demise.
One of the biggest surprises to me over the past year was the shutting of the Jefferies TR/J CRB Global Industrial Metals ETF (CRBI). The fund targeted global companies in the industrial metals space, jam-packed with mega-caps like BHP Billiton, Rio Tinto, Freeport, Vale, Posco and ArcelorMittal.
I would have expected greater investor demand in such a fund, especially because it was the only fund purely targeting industrial metals companies during a commodities bull market and it didn’t have any direct competitors.
Interestingly, only a month after CRBI closed in late December 2011, BlackRock launched a fund targeting the exact same space with many of the same holdings, the iShares MSCI Global Select Metals ' Mining Producers Fund (PICK).
More recently, I was surprised when I learned that IndexIQ will be closing its IQ South Korea Small Cap ETF (SKOR) later next month.
After all, SKOR is currently the only ETF targeting South Korean small-caps, and South Korea remains a popular investment theme, as all the assets in the $2.47 billion iShares MSCI South Korea Index Fund (EWY) clearly demonstrate.
Here at IndexUniverse, we assign closure risks—low, medium or high—to ETFs based on several factors, including daily trading volume and assets under management of both the fund and its issuer. We also look at a fund’s rank in its segment; for example, an ETF with no other direct competitors is more likely to survive than one that’s the fourth-largest fund in a segment that has five other competing funds.
But I also think there’s another factor at play here that can’t be quantified or calculated, and that’s the familiarity factor.
How many people even knew some of these funds existed?
In our current 1,400-plus ETF environment, it’s getting increasingly tedious and difficult for investors—and investment professionals—to keep track of all the funds out there.
I can see how it’s tougher to get the message out for smaller issuers with limited resources compared with giants like BlackRock’s iShares. Still, I’m sometimes shocked at how little marketing effort goes into some new launches.
I sometimes wonder whether certain funds would have gathered more assets if they had been launched by BlackRock under the iShares brand. It seems to me issuers will increasingly need to step up their marketing game to overcome some “investor fatigue” in the ETF launch space in the coming years.
The Envelope, Please
Nevertheless, here’s my list of the top 10 funds I was most surprised to see shutter their doors in the past year.
As you look through this list, ask yourself how many of these funds you knew even existed.
And, by the way, this list isn’t based on closure-risk measures used by IndexUniverse’s ETF Analytics unit , but rather on my own surprise that they garnered so little interest from the market.
So, without further ado, here’s my list of the 10 surprising fund closures in the past year:
10. IQ Taiwan Small Cap ETF (TWON)
9. IQ Hong Kong Small Cap ETF (HKK)
8. Global X Russell Emerging Markets Growth (EMGX)
7. Global X Russell Emerging Markets Value (EMVX)
6. CurrencyShares Russian Ruble (FXRU)
5. Jefferies TR/J CRB Global Agriculture Equity (CRBA)
4. Jefferies TR/J CRB Wildcatters Exploration ' Production Equity (WCAT)
3. IQ South Korea Small Cap (SKOR) – Scheduled to close
2. CurrencyShares Mexican Peso (FXM)
1. Jefferies TR/J CRB Global Industrial Metals Equity (CRBI)
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