We discussed the exploding number of new ETFs and ETNs coming to market and how I identify the potentially troublesome products included in ETF Deathwatch.  We also covered the reasons investors should be cautious of low-liquidity funds with some specific examples.

Here’s a link to the video: http://link.reuters.com/cet27n

There are currently 108 products that have been granted temporary immunity from this list because they are less than six months old.  Many will eventually find their way here.  In fact, eight of the 22 new products launched in January 2010 that are eligible for the first time this month are included in the list below.

One of those “newly eligible” tops our list this month:  iShares MSCI Far East Financials Sector (FEFN).  FEFN had trading activity on only two days in July with a grand total of 500 shares changing hands (another data source shows only one day and a total of 240 shares).  I’m not at all surprised to see this ETF here since the remaining nine ETFs needed to complete the MSCI Far East Sector suite have not been launched.  The other “partial suites” launched by iShares at the same time as FEFN are also suffering.  However, iShares took steps to help the MSCI All-Country ex-US suite by launching the other nine ETFs in July.

Despite all the fanfare and hoopla surrounding the introduction of “actively-managed” ETFs from Grail, all seven of their funds are now on ETF Deathwatch.  Of the 28 actively-managed ETFs currently on the market, four were introduced in the past six months giving them temporary immunity from the ETF Deathwatch list.  Of the remaining 24, eleven of them (45.8%) can be found on the list below.

Listed below are the 146 products on ETF Deathwatch for August that failed to generate at least $100,000 in average daily dollar volume, or average daily value traded (ADVT), during the past month.

ETF Deathwatch for August 2010

Past issues of ETF Deathwatch are available here.

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Last month, I said the low count for June was probably unusual due to the one-month spike in ETF trading activity and other factors.  There are currently 107 products that have been granted temporary immunity from this list because they are less than six months old.  Many will eventually find their way here.

There were 23 new products launched in December 2009, making this the first month they are Deathwatch-eligible.  As it turns out, December 2009 was not a very good vintage with 10 of those new funds showing up on ETF Deathwatch this month.  They are identified in the table below with a “7” in the age column.

Topping the list this month is FaithShares Lutheran Values (FKL).  FKL almost went the entire month with zero volume, but about 900 shares changed hands on the last day of June.  Lutheran Values is not alone as the entire FaithShares lineup can be found on the list.

The average age of these unpopular funds is 29 months, which should be plenty of time to attract interest.  However, many of them have no visible marketing plan.  The sponsors appear to be using them only as place holders.

Listed below are the 133 products on ETF Deathwatch for July that failed to generate at least $100,000 in average daily value traded (ADVT) during the past month.

ETF Deathwatch - July 2010

Past issues of ETF Deathwatch are available here.

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Does this mean the ETF industry is at full health?  I’m not ready to jump to that conclusion for a couple of reasons.  First, our list is based on trading activity, and and trading activity across the entire ETF spectrum was up +57% last month.  If you assume that all ETFs had a 57% increase in trading, then only 66 of the 99 names on the May ETF Deathwatch list would have carried over to this month.

Second, the closing of 12 leveraged ETFs from Rydex means fewer products were eligible this month.  Third, 116 new ETFs and ETNs came out in the last six months that are currently excluded from eligibility.  Many of those products will find their way to this list in the next few months.

I think this all adds up to a temporary decline in the number of products on the list.  My guess is that the Deathwatch list will be back up in triple digits before the summer is over.

There were 28 new funds launched last November, and now that they are at least six months old, they have lost their Deathwatch immunity.  It appears to have been a pretty good crop because 26 of the 28 managed to avoid the list.  The two that entered Deathwatch status are PIMCO 3-7 Year U.S. Treasury Index ETF (FIVZ) and TXF Large Companies ETF (TXF).

Many observers may be surprised that PIMCO now has two products on ETF Deathwatch:  FIVZ and TENZ.  Both are adorned with the PIMCO name and both represent widely followed benchmark bond categories.  So what went wrong?  In a word, the problem is marketing.  PIMCO 7-15 Year U.S. Treasury Index Fund (TENZ) was launched more than eight months ago, but PIMCO has never announced this product – not even a press release.  If they are counting on a “build it, they will come” asset-gathering approach, they may need to rethink that plan.

Meanwhile, no one who has read this column before should be surprised that E-TRACS ETNs are again occupying the top three slots this month.   E-TRACS CMCI Short Platinum Excess Return ETN (PTD) takes top honors.  According to my data sources, there was only a single trade in PTD all month – 100 shares changed hands on May 7.  Another data source I use shows zero volume for the month.

Listed below are the 68 products on ETF Deathwatch for June that failed to generate at least $100,000 in average daily value traded (ADVT) during the past month.

ETF Deathwatch - June 2010

Past issues of ETF Deathwatch are available here.

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

A dozen new funds launched last October, and now that they are at least six months old they have lost their Deathwatch immunity.  Five of these  generated enough investor attention to avoid the list, but seven did not.  Joining ETF Deathwatch for the first time are Grail RP Growth ETF (RPX), Grail RP Technology ETF (RPQ), Grail RP Financials ETF (RFF), Jefferies | TR/J CRB Global Agriculture Equity Index Fund (CRBA), Jefferies | TR/J CRB Global Industrial Metals Equity Index Fund (CRBI), OOK, Inc. (OOK), and UBS E-TRACS DJ-UBS Commodity Index Total Return ETN (DJCI).

Topping the list this month is Elements Ben Graham Large Cap Value ETN (BVL), a name we have seen many times before.  BVL traded on only two separate occasions in April – 240 shares on April Fool’s Day and 1,020 on the 19^th.  The rest of the top 10 consists of the usual suspects along with a couple of the new Grail actively-managed funds.

The closure of 12 ETFs from Rydex later this month will have only a small impact on the Deathwatch total since only three of them are on the list.  Below are the 99 products on ETF Deathwatch for April that failed to generate at least $100,000 in average daily value traded (ADVT) during the past month.

ETF Deathwatch - May 2010

Past issues of ETF Deathwatch are available here.

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Thirteen new funds launched last September, and now that they are at least six months old they have lost their Deathwatch immunity.  Nine of these have generated enough investor attention to avoid the list, but four did not.  Joining ETF Deathwatch for the first time this month are PIMCO 7-15 Year U.S. Treasury (TENZ), EGS Dow Jones Emerging Markets Financials Titans (EFN), SPDR Nuveen S&P VRDO Municipal Bond (VRD), and iShares Russell Top 200 Index Fund (IWL).

Topping this month’s list are E-TRACS CMCI Livestock Total Return ETN (UBC) and E-TRACS CMCI Short Platinum Excess Return ETN (PTD), which both averaged less than 100 shares traded per day in March.  UBC traded on just six of 23 market while PTD could muster only three.  Six other E-TRACS are on the list this month.  They have now been on the market for two years and have failed to attract any investor interest.  One has to wonder how much longer UBS will subsidize these products.

Two WisdomTree funds are on the list month, even after they shuttered ten funds in March.  WisdomTree Dreyfus Japan Yen (JYF), one of their actively-managed funds, is #29 on the list and WisdomTree LargeCap Growth (ROI), the first GARP ETF, is #68 on the list.

Listed below are the 108 products on ETF Deathwatch for April that failed to generate at least $100,000 in average daily value traded (ADVT) during the past month.

ETF Deathwatch - April 2010

Past issues of ETF Deathwatch are available here.

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Only four funds were launched last August.  Since they surpassed six-months of age during February, they are no longer excluded from consideration.  Three of them are doing quite well, but the Global X Nordic 30 ETF (GXF) is on this month’s list at #99.  I for one would like to see this product succeed as it provides unique foreign market access.  GXF is still relatively young and therefore has plenty of potential to escape the list in coming months.

The top of this month’s list is headed up E-TRACS CMCI Short Platinum Excess Return ETN (PTD).  Trading was especially pitiful with only 400 shares changing hands on a single day of trading back on February 4.  PTD is the only inverse platinum product on the market, so it can’t be blamed on competition.

ELEMENTS Ben Graham Large Cap Value ETN (BVL), one of our regulars, managed to trade on six days during February, an improvement from its five days of January trading.  Most investors are not familiar with the ELEMENTS brand.  ELEMENTS are more or less owned by Merrill Lynch, but Merrill does not issue them.  In the case of BVL and a few others, they are unsecured notes issued by Deutsche Bank.  Other ELEMENTS notes are issued by Credit Suisse, HSBC, or Swedish Export Credit Corporation.  The ETNs are then distributed by Nuveen and Merrill Lynch. 

Merrill Lynch’s ETF products aren’t doing much better than their ETNs.  Merrill Lynch HOLDRS have been around for years, but their fixed structure is now antiquated.  Six of the HOLDRS are on ETF Deathwatch this month, and there are now better “true ETF” alternatives for all HOLDRS.  

Don’t forget that WisdomTree will close 10 funds this month with the last day of trading being March 24.  Sell your shares before the liquidation process begins and use a limit order.  Listed below are the 104 products on ETF Deathwatch for March that failed to generate at least $100,000 in average daily value traded (ADVT) during the past month.

ETF Deathwatch - March 2010

 Past issues of ETF Deathwatch are available here.

 Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

This month’s list contains 69 ETFs and 30 ETNs for a total of 99.  The $100,000 threshold in average daily trading activity is a relatively small amount and it doesn’t take much to push a product above or below the cutoff.  Those escaping the list this time could very well be back next month.

WisdomTree recently announced plans to close 10 funds in March.  Most of the affected products are regular members of ETF Deathwatch, but they somehow managed to escape the current list. WisdomTree was the first firm to announce closings in 2010, but I predict they won’t be the only one.

Elements Ben Graham Large Cap Value ETN (BVL) heads the ETF Deathwatch list again this month, trading on only five days in January.  BVL is joined by seven other Elements brand ETNs, and a large percentage of the products from E-TRACS.

Listed below are the 99 products that failed to generate at least $100,000 in average daily value traded (ADVT) during the past month.

ETF Deathwatch - February 2010

Past issues of ETF Deathwatch are available here.

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

The next ten years will likely be marked by rapid growth again, although nowhere near the 40% growth of the past.  Even if the growth rate of new products slows to only 10% this decade, that means we will be looking at 2,400 ETPs in 2019.  My guess is the actual number will be higher.

Fund closures are also likely to accelerate.  In recent years, being “first to market” was a key ingredient in a product’s success.  But the market is now more demanding.  New products need to provide value in order to generate investor interest.  Value can take many forms:  lower cost, access to previously unavailable markets, or a novel approach to a particular market segment.

It is still relatively inexpensive for a sponsor to launch a bunch of unproven ideas and see what works and what doesn’t.  Therefore, as the number of new product launches accelerates, so do the prospects that many won’t survive.  New ETPs must provide value and the sponsor must market them effectively.

Elements Ben Graham Large Cap Value ETN (BVL) heads the list for January, as it has many times in the past.  BVL traded on only four days in December.  I should probably remind you that the table below does not have any zeros missing.  The volume and dollar figures represent the actual amounts, not millions or thousands (or even hundreds).  BVL trades just 164 shares a day on average.  But then again, since its actual volume was zero shares 82% of the time, a truly average/typical day would not have any trades.

While most investors are familiar with the name “Ben Graham”, unless you are a regular reader of this column then you are probably not familiar with the “Elements” brand.  And therein resides one of BVL’s problems – lack of awareness.  I don’t recall ever seeing an ad for Elements ETNs.

Another problem is that although it sounds like a stock fund, what you are really buying is an unsecured debt obligation, otherwise known as an ETN.  Yet another potential problem is not knowing who is standing behind that debt, because it’s not Elements.  In the case of BVL, Deutsche Bank is the note issuer, but the same is not true of all Elements ETNs.

Listed below are the 118 products on ETF Deathwatch for January.  The 78 ETFs and 40 ETNs that failed to generate at least $100,000 in average daily value traded (ADVT) during the past month.  The 90 new ETPs introduced in the past six months are granted an exclusion.

ETF Deathwatch - January 2010

Past issues of ETF Deathwatch are available here.

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

E-TRACS CMCI Short Platinum Excess Return (PTD) headed the list for the fourth month in a row.  PTD saw action on only one day in November and it was for only 100 shares.  So far in 2009 PTD has only traded on 33 days.  In the August-November period it traded on just 10 days for a cumulative volume of 1,100 shares while posting 74 days of zero volume.  Its highest volume day during that four-month span was just 300 shares.

Hello?  E-TRACS? Is anybody home?  More than 90% of your entire product line is in shambles.  This is not a new revelation.  It’s been going on for a long time.  Yet someone at E-TRACS had the courage (if that the right word) to launch yet another new product last month.

Claymore has 16 products on this month’s list.  Last month, Claymore announced that four (MZG, MZN, MZO, UEM) of them would be shut down in December but has said nothing about the others.

Elements has eight products on this month’s deathwatch, including three named after Ben Graham.  Clearly it takes more than a name to make an exchange-traded product financially successful.  PowerShares has the dubious distinction of having the largest quantity of products on the list at 29.   To make things worse for these struggling ETFs, ETNs, and sponsors, Schwab has now upped the ante for anyone wanting to compete in this arena.

The average age of the funds on ETF Deathwatch is more than 28 months, so this isn’t really a “new fund” phenomenon.  In fact, the 83 new products launched in the past six months are excluded to give them a chance to establish a foothold.

ETF Deathwatch - December 2009

Past issues of ETF Deathwatch are available here.

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.