Not all products that come to market are runaway successes, whether you’re talking about cars, new soft drinks or, yes, even exchange traded funds (ETFs). We can’t tell you what to do when your car’s model ceases to exist, but we can help you figure out what’s next when your ETF closes.
First, the announcement is made that your ETF is closing. This is usually done well in advance of the date that it will cease trading; you won’t wake up one morning to find that it’s disappeared into thin air. Your lead time is generally three to four weeks.
During this time, you can buy or sell shares as you normally would.
On the day that the ETF closes, all trading stops. The provider then has a period of time (about two weeks) to sell the underlying securities within the ETF. [10 Reasons You’re Better Off With ETFs.]
If you decided to hold onto the ETF until this point, then the proceeds of that sale (if there are any), will be distributed to you and others who are holding the ETF. You will get the value of the securities from when they were sold, though, not when the ETF stopped trading. [Understanding ETFs and Taxes.]
This means that if you decide to hold the ETF until this point, you’re running the risk that the underlying securities could go down in value in that time. They could also go up, of course.
If you want to know the value you are getting from your ETF, it might be better to sell the shares before the ETF stops trading. Otherwise, you’re left cooling your heels and won’t know what you’re going to get until the securities are sold and proceeds are distributed. It’s up to you to decide if that’s a risk you want to take. [6 Things Every ETF Investor Should Know.]
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.