Final ETF Death Toll for 2008 = 58

[This article contains revisions to correct data regarding fund closures prior to 2004]

The ETF industry was nearly 10 years old before it had its first three casualties in 2002.  Another six funds closed in 2003.  Three years passed before the next ETF fell by the wayside with the departure of the SPDR O-Strip in 2006.  At the end of 2007, the U.S. ETF industry had seen a grand total of only ten ETFs meet their demise.

All that changed in 2008 with the delisting of 58 ETFs and ETNs.  The industry’s lifetime toll surged from 10 to 68.  A casual observer might blame this on the financial crisis that engulfed the market during the last quarter of the year, but in fact more than 80% of the closures were announced before the end of September.  The market crisis didn’t cause the ETF death toll to surge this year; it was more a simple case of supply and demand.

A record number of new ETFs, more than 290, came to market in 2007.  An industry of less than 200 products in 2004 exceeded the 800 level in early 2008.  A four-fold increase in the number of ETFs in just three years was too much, too fast.  There were simply more products than the market could absorb.  The demise of 58 ETFs this year is nothing more than Economics 101 at work.  There is still too much supply, and there will be more closures in 2009.

The 58 delisted ETFs of 2008 are itemized in the table below.  A common theme for the failures: basing a product on a very narrow slice of the market.  XShares Advisors suffered the most casualties, losing 26 products with the closure of seven Adelante real estate ETFs in July, 15 HealthShares in September, and another four HealthShares in December.  Claymore lost a total of 13 during the year.

Most ETFs closures are purely economic – the product failed to attract enough fee-paying assets to make it viable for its sponsor.  However, that is not the only reason.  Two ETFs were closed by design this year.  The prospectus for Claymore’s MacroShares Oil Up and MacroShares Oil Down stated that if crude oil traded above a certain price ($111) for three days in a row, then the funds would be closed and liquidated.  That of course happened in April, forcing a shut down and eventual liquidation of those two ETFs.

Three other products met their demise in a somewhat surprising way, at least to those who own them.  Exchange Traded Notes (ETNs) are different from ETFs, but they are generally lumped together when discussing ETFs.  ETNs are actually bonds (typically with a 30-year maturity) that pay no interest, and their daily value is linked to the performance of an index.  Because they are bonds, they also have a risk of default.  That is exactly what happened on September 12 when Lehman Brothers declared bankruptcy.  Lehman was the bond issuer for Opta Lehman Agriculture Pure Beta ETN, Opta Lehman Commodity Index ETN, and Opta S&P Private Equity Notes ETN.  Owners of these three ETNs may one day get about 10 cents on the dollar if they are lucky.  Chances are, they will wait a long time to learn that they will receive nothing.

Yes, the final ETF death toll was high in 2008, but it is likely to be higher in 2009.  Look for my first ETF Deathwatch of 2009 to be published in just a few days to see if your ETF is on the list.

ETF Death Toll - 2008

Number	Ticker	Name	R.I.P.
1	BST	Claymore/BIR Leaders 50	02/12/2008
2	CLV	Claymore/Robeco Boston Partners Large-Cap Value	02/12/2008
3	CZG	Claymore/Zacks Growth & Income Index	02/12/2008
4	SCV	Claymore/IndexIQ Small-Cap Value	02/13/2008
5	BES	Claymore/BIR Leaders Small-Cap Core	02/14/2008
6	BMV	Claymore/BIR Leaders Mid-Cap Value	02/15/2008
7	MCG	Claymore/Clear Mid-Cap Growth Index	02/15/2008
8	KSF	Claymore/KLD Sudan Free Large-Cap Core	02/15/2008
9	JNR	Claymore/Clear Global Vaccine Index	02/19/2008
10	GRN	Claymore/LGA Green	02/19/2008
11	EEW	Claymore/Robeco Developed World Equity	02/19/2008
12	GKA	Ameristock Ryan 1-Year Treasury	06/10/2008
13	GKB	Ameristock Ryan 2-Year Treasury	06/10/2008
14	GKC	Ameristock Ryan 5-Year Treasury	06/10/2008
15	GKD	Ameristock Ryan 10-Year Treasury	06/10/2008
16	GKE	Ameristock Ryan 20-Year Treasury	06/10/2008
17	DCR	Claymore/MacroShares Oil Down	06/25/2008
18	UCR	Claymore/MacroShares Oil Up	06/25/2008
19	ACB	Adelante Real Estate Composite	07/24/2008
20	AKB	Adelante Real Estate Kings	07/24/2008
21	ACK	Adelante Shares RE Classics	07/24/2008
22	AGV	Adelante Shares Real Estate Growth	07/24/2008
23	AQS	Adelante Shares Real Estate Shelter	07/24/2008
24	AVU	Adelante Shares Real Estate Value	07/24/2008
25	ATY	Adelante Shares Real Estate Yield Plus	07/24/2008
26	EOH	Opta Lehman Agriculture Pure Beta ETN	09/12/2008
27	RAW	Opta Lehman Commodity Index ETN	09/12/2008
28	PPE	Opta S&P Private Equity Notes 2038 ETN	09/12/2008
29	HHA	HealthShares Autoimmune-Inflammation	09/19/2008
30	HHE	HealthShares Cardio Devices	09/19/2008
31	HRD	HealthShares Cardiology	09/19/2008
32	HHQ	HealthShares Composite	09/19/2008
33	HRW	HealthShares Dermatology & Wound	09/19/2008
34	HHJ	HealthShares Emerging Cancer	09/19/2008
35	HHT	HealthShares European Medical Prod & Devices	09/19/2008
36	HHU	HealthShares GI/Gender Health	09/19/2008
37	HHG	HealthShares Infectious Diseases	09/19/2008
38	HHM	HealthShares Metabolic-Endocrine Dis.	09/19/2008
39	HHN	HealthShares Neuroscience	09/19/2008
40	HHZ	HealthShares Ophthalmology	09/19/2008
41	HHP	HealthShares Orthopedic Repair	09/19/2008
42	HHB	HealthShares Patient Care Services	09/19/2008
43	HHR	HealthShares Respiratory/Pulmonary	09/19/2008
44	YYY	Bear Stearns Current Yield	10/01/2008
45	MYP	FocusShares ISE CCM Homeland Security	10/17/2008
46	SAW	FocusShares ISE Homebuilders	10/17/2008
47	PUF	FocusShares ISE SINdex Fund	10/17/2008
48	WSI	FocusShares ISE-REVERE WalMart Suppliers	10/17/2008
49	ADE	Elements Australian Dollar AUD/USD ETN	11/17/2008
50	EGB	Elements British Pound GBP/USD ETN	11/17/2008
51	CUD	Elements Canadian Dollar CAD/USD ETN	11/17/2008
52	ERE	Elements Euro EUR/USD ETN	11/17/2008
53	SZE	Elements Swiss Franc CHF/USD ETN	11/17/2008
54	NXT	NYSE Arca Tech 100 ETF	12/15/2008
55	HHK	HealthShares Cancer	12/23/2008
56	HHD	HealthShares Diagnostics	12/23/2008
57	HHV	HealthShares Drug Discovery Tools	12/23/2008
58	HRJ	HealthShares European Drugs	12/23/2008

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