In rare cases, investors who opt to hold until the fund is liquidated may also be billed for the costs of closing, or “termination fee,” which includes legal fees and administrative costs – ETFs may raise the expense ratio retroactively.
According to the ETF Industry Association, there was 1,486 ETF and exchange traded note products available, with $1.2 trillion in assets under management, as of the end of July.
“But for those concerned about ETF closures, perhaps there is an equally important criterion that should be considered, namely, which fund company sponsors the ETF in question,” Ryan Issakainen, Senior V.P. and ETF Strategist at First Trust Advisors, previously stated. [Why ‘Zombie’ ETFs are Still Kicking]
If funds do not gather enough assets, fund providers may not find it profitable to keep the ETF. However, larger companies with deeper pockets may patiently wait it out until a fund becomes popular enough to generate sustainable profits.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.