ETF providers shutter a fund when it fails to gain enough assets under management. For one, it can become unprofitable to keep a fund in existence if asset levels aren’t high enough, and if the issuer does not have enough strength. A fund can also shut down if it tracks a niche area of the market that fails to attract enough investor interest.
Among the active ETF industry, some say that “survivorship bias” is a problem that could result from such a fund closing. By closing down a lagging ETF and keeping the winning ETF trading, the track record of the active manager can become falsely bolstered by the winning performance, reports Ian Salisbury for The WSJ. [The Number of ETF Closures is Rising]
Basically, closing down a losing fund is a business decision and there is no intention of enhancing manager performance, or track records. The end result is getting the best possible product out to the investor and eliminating the unnecessary.
Tisha Guerrero contributed to this article.