Investors should note that over an ETF’s last few days of trading, sellers will be scrambling to dump their positions, which can lead to hefty losses. Due to the disparate number of sellers to buyers, the bid/ask spread tend to widen. Potential sellers should try to set up limit orders to sell at a given price so that one won’t get caught unawares.
Alternatively, an investor can hold the ETF until the closure date. The termination date is typically set within four to six weeks after the closing announcement. Once the ETF shuts down, shares will be redeemed on that day’s closing NAV, and cash is then deposited into investors’ accounts.
In some cases, those 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 PIMCO, FIVZ, TENZ and FORX investor shares will automatically redeemed as of the close of business on the liquidation date without the imposition of redemption transaction fees. However, the investors will have to deal with the tax consequences of the sale. [Steps To Take When Your ETF Is About To Close]
Nevertheless, PIMCO still offers a number of Treasury bond-related ETFs, including the short-term PIMCO 1-3 Year U.S. Treasury Index Fund (NYSEArca: TUZ) and long-term PIMCO 25+ Year Zero Coupon US Treasury (NYSEArca: ZROZ).
For more information on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.