With the markets swinging as wildly as they are, investors may pull enough assets out of an exchange traded fund and potentially force fund providers to close less desirable funds.
“Sudden and large investor withdrawals triggered by market events or counterparty risk concerns can also lead to funding liquidity risk,” according to the Bank of International Settlements, reports John Wasik for Reuters.
The number of ETFs that are being shut down or liquidated, while previously a rare occurrence, has skyrocketed over the last couple of years. Closings are up 500% in each of the last three years since 2007, or about one a week.
In 2007 there were no exchange traded product closings, but in 2008, 59 funds closed; in 2009, 56 funds closed; and in 2010, 49 funds closed, according to IndexUniverse.