As the exchange traded fund (ETF) industry is taking off, there is one investment fund brand that is getting left in the dust. HOLDRs, by Merrill Lynch, is an ETF type investment tool that trades on exchanges like the others. Ian Salisbury for The Wall Street Journal reports that HOLDRs have steadily lost assets over the past several years and questions whether they are going into extinction.
While Merrill Lynch declined any response to the endangered species theory, the dwindling popularity could cause issues for investors. Thinly traded securities are more expensive to buy and sell. A few HOLDRS do have have higher trading volumes than similar ETFs. The total assets held by HOLDRs dropped 24% to $7.1 billion from $9.3 billion in early 2005. During that same period, ETF assets surged 76% to $560 billion, from $320 billion.
HOLDRs do have an advantage over ETFs – since they charge no management fee, they are cheaper to own. A quirk that presents itself is that HOLDRS are a fixed slate of stocks and only readjust if a corporate buyout or sell off occurs. Investors who own HOLDRs get proxy materials from every company they own within the tool. This type of paperwork is overwhelming.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.