The exchange traded fund universe continues to expand as institutions, advisors and retail investors utilize the nifty investment vehicle. Nevertheless, the industry has gotten to where it is at now after some growing pains and lessons learned along the way.
Since ETFs began to come to market two decades ago, 337 ETFs have delisted, with over 40% of the closures occurring over the past 18 months, reports Eric Balchunas for Bloomberg.
To put this in perspective, there are currently 1,512 U.S.-listed ETFs on the market.
ETF closures occur for a number of reasons, but in the long run, they are healthy for a growing and competitive industry. As ETFs shutdown, the industry weeds out weaker investment ideas and help generate higher-quality products.
Balchunas points out some of the more infamous ETFs that shuttered and helped steer the industry’s investment objective.
The now defunct XShares HealthShares Emerging Cancer (HHJ) traded between 2007 and 2008. The company said that the ETF did not attract enough assets because their “timing was bad.”
The PowerShares DB Crude Oil 2X (DXO) traded between 2008 and 2009, closing with $425 million in assets under management, the largest ETN or ETF to ever close, due to “limitations imposed by the exchange.” The CFTC was woried that the ETF had too much influence on the futures market, revealing the influence of regulators on the fund industry.
The DENT Tactical (DENT) traded between 2009 and 2012. The actively managed ETF had poor performance, a confusing objective and high costs.
The FaithShares Christian Values (FOC) traded between 2009 and 2011. While the Christian value investment objective was not a popular hit with investors, the FaithShares provider used its regulatory approval to re-invent itself as Exchange Traded Concepts (ETC), a company that helps money managers launch their own ETF ideas.
The Guggenheim Airlines (FAA) traded between 2009 and 2013. FAA had $21 million in assets when it closed. The ETF tracked a prominent sector with a strong relationship to oil. However, Balchunas believes there was not enough marketing muscle behind the ETF to properly promote it.
The iShares Diversified Alt Trust (ALT) traded between 2009 and 2013. ALT was the first iShares ETF to close in over a decade. The company believed that it had little-long term demand and decided to cut its losses.
The Focus Morningstar Large Cap (FLG) traded between 2011 and 2012. Scottrade’s FocusShares tried to compete with similar offerings by lowering its expense ratio, but investors weren’t keen on another “me-too” product.
The Global X Fishing Industry (FISN) traded between 2011 and 2012. The fund suffered poor timing with its large allocation in Japan during the large earthquake, tsunami and power plant disaster in 2011. If FISN traded today, it would have increased 31% over the past year.
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Max Chen contributed to this article.