Exchange Traded Funds

Many exchange traded fund observers point to low assets under management as a predominant indicator for the future success of an ETF, but there are other factors that affect a fund’s survivability.

“The biggest driver of fund closure in conjunction with low assets was actually the overall strength of the issuer; in other words, the less assets the provider had overall, the more likely it was to close a product (or even an entire line of products),” Credit Suisse analyst Victor Lin said in a research note. [The Number of ETF Closures is Rising]

In contrast, larger providers have deeper pockets to keep products opened without a significant negative impact. [iShares Plans First ETF Closure Since 2002]

Moreover, there is a type of trial period that most fund providers monitor.

“75% of the ETPs that have closed have done so within 2 years,” Lin added. “The patience of a provider to wait for a product to be widely adopted has also diminished over time.”