This year, the exchange traded fund(ETF) industry has hit a wall, with well over 100 funds expected to close up shop.

After rapid and successful proliferation in 2007-2008, the ETF industry has come to a turning point, as supply has outrun demand. In fact, Northern Trust has decided to dissolve 17 funds already, and experts are predicting that this is only the beginning.

Steve Garmhausen for Financial Planning reports that too many funds cam to market too fast, and now the ETF shakeout has begun. So far, an unofficial list has been put together with 153 on “deathwatch.” The list consists of 120 ETFs and 33 ETNs that are at least six months old and failed to have an average daily value traded of at least $100,000 during January.

Last year, 164 new ETFs launched, while 46 closed.

The larger well-established providers are expected to withstand the stress; Barclays, Vanguard and State Steet are among the heavyweights. At the end of January, $496 billion ETFs were managed by 22 providers.

We feel that the industry has certainly acted responsibly in the closure of certain ETFs. If particular funds don’t gain traction, then providers are closing them down after a period of time. It’s not because nothing was done right, though. Maybe funds that have closed weren’t first to market, or maybe some of them were very creative, but there just wasn’t enough demand to sustain the funds. It’s all about survival of the fittest, now more than ever.

Whatever the reason, the bottom line is that ETFs are doing what they should. It’s just tough to raise assets in this environment. Many in the industry certainly aren’t letting that get them down, though. Look at Claymore: a year ago, they closed 11 ETFs, but they haven’t slowed in the launch of new ones.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.