Two ETF providers recently calling it quits underscores the fact that the competition in the industry is very tight, especially in equity-based index funds. Also, smaller firms need a strong sales strategy and distribution to flourish, reports Ari Weinberg for Forbes.
The latest wave of exchange traded fund closures are the result of not having enough assets under management.
The rule of thumb in the ETF business for new products is three years – the fund has three years to gather assets and track its benchmark well – until liquidation or consolidation takes place, Weinberg reports. [Alternative ETFs May Find Home in Separate Accounts]
Russell Investments is closing all its ETFs except one, and Scottrade’s FocusShares is exiting the business altogether.
Dustin Lewellyn of Golden Gate Investment Consulting in the Forbes article chalks both of the failures to a mutual-fund term of art: “distribution strategy.” [My ETF is Shutting Down – Now What?]