Most of the recent milestones associated with the exchange traded funds industry have been positive, but a negative milestone was reached this week.
With the close of five target-date ETFs from Deutsche Asset & Wealth Management (Deutsche AWM) this week, 500 ETFs and exchange traded notes (ETNs) have closed, according to Ron Rowland of Invest With an Edge.
“To put this number in perspective, a grand total of 2,207 ETFs and ETNs have been listed on US exchanges. The 500 closures represents a 22.7% mortality rate,” notes Rowland.
In 2014, approximately 80 ETFs closed while issuers brought nearly 205 new products to market. This year, nearly 30 U.S. ETFs have been closed. Roughly 90 new ETFs have come to market this year and the number will likely top 100 in the coming weeks. [Another Good Year for new ETFs]
Last year, 205 exchange traded products debuted in the U.S., but in a sign of the increasingly competitive fight for investors’ attention assets, by late in the year, close to half 2014’s new ETFs had less than $10 million in assets under management. Some of this year’s new ETFs have found rapid success, including the SPDR DoubleLine Total Return Tactical ETF (NYSEArca: TOTL), CSOP FTSE China A50 ETF (NYSEArca: AFTY) and the iShares Exponential Technologies ETF (NYSEArca: XT). [Fast Success for Some new ETFs]
As Rowland notes, ETF closures are signs of a healthy industry. Other industries shutter non-performing assets and businesses. For example, Starbucks (NasdaqGS: SBUX) announced 600 closures in 2008, but that did not mean coffee was out of style. Said another way, ETF closures do not mean the industry is faltering. Actually, the opposite is true.
According to ETFGI, a London-based ETF research firm, the global exchange traded products industry will surpass hedge funds in terms of assets under management this quarter.
“According to our analysis published on April 24th, assets in the global ETF/ETP industry reached a new record of US$2.926 trillion at the end of Q1 2015, while assets in the global hedge fund industry, according to a new report published by Hedge Fund Research (HFR), reached a record US$2.939 trillion. Assets in the ETF/ETP industry have been gaining on those invested in the hedge fund industry with the difference narrowing from US$230 billion at the end of 2013 to just US$13 billion at the end of Q1 2015,” according to a note published by ETFGI last month.
Assets in U.S.-listed exchange traded products rose to a record $2.132 trillion at the end of April, according to ETFGI.
“Of the 2,207 product launches, 1,929 have been ETFs and 278 have been ETNs. Meanwhile, the 500 closures consist of 430 ETFs and 70 ETNs. So far, ETF survivability has been 77.7% and ETN survivability comes in at 74.8%,” said Rowland.
U.S. ETF and ETP Growth
Chart Courtesy: ETFGI