ETP Closures Hit 300

October 19, 2012 by  
Filed under Commentary, ETF Closings

ETP closure activity this week pushed the lifetime death toll to 300 and the year-to-date count to 89.  Early October action from iPath, Russell, and Global X resulted in 30 delistings so far this month.

If a tree falls in the forest and no one is there to hear it, does it still make a sound?  If an ETF closes and no shares are there to be redeemed, does it still need to liquidate?  That second philosophical question has now been answered by two Russell ETFs.  The Russell Low P/E ETF (LWPE) and Russell Small Cap Contrarian ETF (SCTR) were scheduled to have their last day of trading on October 16 as part of the 25-fund mass closure of Russell indexed ETFs.  However, the final shares of LWPE were redeemed on October 4 and assets went to zero.  The same thing happened to SCTR on October 5.  Russell decided (press release) to delist them the day their assets went to zero instead of waiting until October 16.  No shareholders were harmed by this spur of the moment closing because there were none.  

The next product to meet an early demise was the iPath Long Enhanced S&P 500 VIX Mid-Term Futures ETN II (VZZB).  It triggered an early termination event on October 5 when its intra-day NAV hit $10, with delisting occurring after the close on October 14.  VZZB came out in July 2011 to fill the void when VZZ hit its early termination trigger.  This month’s second early termination makes this strategy a two-time loser.  No word on whether Barclays intends to see if the third time is the charm with a VZZC ETN III rollout.

October 16 was the last day of trading for the remaining 23 of the 25 Russell ETFs scheduled for closing this month.  Yesterday (October 18) was the last day of trading for four Global X ETFs: Global X Aluminum ETF (ALUM), Global X Auto ETF (VROM), Global X NASDAQ 400 Mid Cap ETF (QQQM), and Global X NASDAQ 500 ETF (QQQV).

Analysis/Opinion:  In addition to the 89 closures that have already taken place, there are currently five more scheduled to come this year.  That pushes the tally for 2012 to 94 and climbing, more than double the 38 ETP closures of 2011.  The number of lifetime ETP launches in the U.S. is 1,733, of which 300 have now met their demise.  That equates to a 17.3% mortality rate.  Keep in mind that there are well in excess of another 300 on ETF Deathwatch.  If sponsors decide to stop subsidizing these non-profitable products, we could be looking at an ETP survival rate of less than two-thirds.

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.

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