The quantity of funds on ETF Deathwatch climbed by 18 for July with the addition of 24 new names and the removal of six. Only three of those leaving did so by improving their health. The other three left in a casket. The new count is 490 (380 ETFs and 110 ETNs), and it will likely surpass 500 next month if the current pace continues.
Based on the 1,931 listings at the end of June, the 490 funds on ETF Deathwatch suggests that 25.4% of the funds more than six months old are both illiquid and vulnerable to closure. Another 124 (6.4%) are excluded from this calculation because they were launched in the past six months and are given a grace period.
Two weeks ago, the industry crossed a milestone with the 600th ETF closure. The lifetime mortality rate for U.S. ETFs and ETNs now stands at 23.6%. Given that 25.4% of the still-living products are on ETF Deathwatch, and another 6.4% may potentially join the list when they achieve six months of age, suggests that more than half of all the products launched so far may not survive. It behooves you to pay attention and not buy just any ETF with a catchy name, ticker symbol, or fancy marketing campaign.
The average asset level of products on ETF Deathwatch increased from $7.0 million to $7.2 million, and the quantity of products with less than $2 million in assets grew from 92 to 96. The average age increased from 47.2 to 47.7 months, and the number of products more than five years of age jumped from 187 to 197. Nearly 200 products have been losing money for their sponsors for more than five years. The reasons are not clear, but here are some possibilities:
- The fund is part of a strategic lineup.
- The sponsor is convinced it’s “just a matter of time” before assets increase.
- The sponsor is in denial and/or believes closing would be an admission of failure.
- The board is unaware of the situation.
At least one ETF sponsor has told me it has never closed an ETF and it intends to never close one. This appears to be some sort of false pride, as this sponsor believes it would be an admission of failure instead of embracing the benefits of closing an unprofitable ETF.
Many investors are of the opinion that small ETF shops have the most closures. However, it turns out that some of the largest sponsors are also the ones willing to shed unsuccessful or unwanted products. They have learned that trimming the dead wood is key to long-term survival and success. BlackRock iShares intends to liquidate and shutter 10 ETFs next month. Their last trading day will be August 23, and at that time, iShares will have closed 66 ETFs, the most of any sponsor. Invesco PowerShares has closed 59 funds, Guggenheim has shuttered 41, and many others are in double digits. It would seem that closing an ETF would put you in good company.
Here is the Complete List of 490 ETFs and ETNs on ETF Deathwatch for July 2016 compiled using the objective ETF Deathwatch Criteria.
The 24 ETFs and ETNs added to ETF Deathwatch for July:
- AdvisorShares Madrona International (FWDI)
- AdvisorShares WCM/BNY Mellon Focused Growth ADR (AADR)
- Direxion Daily Healthcare Bear 3x (SICK)
- Direxion Daily S&P 500 Bull 2x (SPUU)
- Elkhorn FTSE RAFI U.S. Equity Income (ELKU)
- ETRACS Wells Fargo MLP Index ETN (MLPW)
- First Trust Hong Kong AlphaDEX (FHK)
- First Trust Indxx Global Natural Resources Income (FTRI)
- Guggenheim Dow Jones Industrial Avg Dividend (DJD)
- IQ 50 Percent Hedged FTSE Japan (HFXJ)
- iShares Edge MSCI Min Vol EM Currency Hedged (HEMV)
- iShares MSCI China Small-Cap (ECNS)
- Legg Mason Developed ex-US Diversified Core (DDBI)
- Legg Mason Emerging Markets Diversified Core (EDBI)
- Legg Mason US Diversified Core (UDBI)
- Pacer Autopilot Hedged European (PAEU)
- ProShares S&P 500 Ex-Energy (SPXE)
- ProShares Short Basic Materials (SBM)
- QuantShares U.S. Market Neutral Momentum (MOM)
- SPDR Barclays International High Yield Bond (IJNK)
- SPDR S&P 500 Buyback (SPYB)
- Tierra XP Latin America Real Estate (LARE)
- VanEck Vectors Poland (PLND)
- Victory CEMP US Small Cap Volatility Weighted (CSA)
The 3 ETPs removed from ETF Deathwatch due to improved health:
- iShares Enhanced U.S. Small-Cap (EMGF)
- John Hancock Multifactor Mid Cap (JHMM)
- ProShares Ultra Gold Miners (GDXX)
The 3 ETFs removed from ETF Deathwatch due to delisting:
- CS X-Links Merger Arbitrage ETN (CSMA)
- Barclays OFI SteelPath MLP ETN (OSMS)
- ALPS Enhanced Put Write Strategy (PUTX)
Disclosure: Author has no positions in any of the securities mentioned and no positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) is received from, or on behalf of, any of the companies or ETF sponsors mentioned.