Invest With An Edge

ETF Deathwatch for January 2018

ETF Deathwatch for January had 12 additions and 22 exits. All of the funds exiting the Deathwatch list were due to improved health. The membership tally decreased to 444. None of the funds added to the list were ETNs this month, and only one ETN left the list this month. All other removals and additions were ETFs. The lack of ETNs (typically more financially creative products) in the additions indicates a market appetite for more risk for these financially creative products.

Though not reflected in our ETF Deathwatch, the VelocityShares Daily Inverse VIX ETN (XIV) was closed earlier in the month of February. Extreme market conditions for the CBOE Volatility Index (VIX) triggered a clause in the prospectus that allows the fund company to call their ETN early, which is exactly what happened. This caused an almost total loss for investors, as the fund dropped over 90% in value in a single day and remained there.

While this fund did not meet our ETF Deathwatch Criteria, it was noted as a “broken product” in our 2017 “ETF Field Guide” due to the hedging that the fund company can place on their portfolio to prevent more than 100% of losses (for which the company would be on the hook). This uncoupling from the underlying index is written into the prospectus, and therefore we classified it as a risky product. Unfortunately, many investors missed out on this potential warning. Going forward, we expect there to be some heavier consideration given to the creation of ETN products as a whole, and VIX-based ETNs specifically.

Nine of the 12 additions to the list were young funds, having just come out of the six-month grace period given to all new ETFs. Since they haven’t had much time to attract investor interest, they still have a good chance of coming off the list down the road; however, one addition, the ProShares Inflation Expectations ETF (RINF), is 6 years of age, which is indicative of declining interest. Funds like this are the most likely to be vulnerable to closure. This fund was added to the list due to low trading volume rather than a decrease in assets under management (AUM). Only one fund, the Direxion Daily Euro Stoxx 50 3x ETF (EUXL), had insufficient assets. Most ETFs added to the list are niche products, such as the ProSports Sponsors ETF (FANZ). One, however, was solidly within the traditional investment realm: the iShares Russell 2500 ETF (SMMD).

With no closures this month, it appears that most fund managers see little need to cut costs for their products that bring in smaller revenues. The market moved steadily upward during the month of January, and it may be possible that the market tumult in February will spark an increase in closures.

There are 39 ETFs and ETNs on Deathwatch this month that have been in the market for more than 10 years. That is a long time to wait for investor interest to kick in. The BLDRS Asia 50 ADR Index Fund (ADRA) and BLDRS Europe 100 ADR Index Fund (ADRU) are the most extreme examples still on the list. Five ETFs hit their 10-year mark this month, with assets of only $8.62 million.

The average asset level of the threatened ETFs on ETF Deathwatch fell slightly from $7.45 million to $7.41 million, and the number of products with less than $2 million in assets decreased from 85 to 81. The average age rose from 53.43 to 53.55 months, and the number of products more than 5 years of age decreased from 177 to 172. The largest ETF on the list had an AUM of $24.69 million, while the smallest had assets of just $417,000.

Here is the Complete List of 444 ETFs and ETNs on ETF Deathwatch for January 2018 compiled using the objective ETF Deathwatch Criteria.

 

The 12 ETFs added to ETF Deathwatch for January:

  1. Direxion Daily Euro Stoxx 50 Bull 3x Shares (EUXL)
  2. ProSports Sponsors ETF (FANZ)
  3. First Trust California Municipal High Income ETF (FCAL)
  4. iShares Edge High Yield Defensive Bond ETF (HYDB)
  5. iShares Edge Investment Grade Enhanced Bond ETF (IGEB)
  6. Oppenheimer Emerging Markets Revenue ETF (REEM)
  7. Oppenheimer Global Revenue ETF (RGLB)
  8. ProShares Inflation Expectations ETF (RINF)
  9. iShares Russell 2500 ETF (SMMD)
  10. PowerShares S&P 500 Minimum Variance Portfolio (SPMV)
  11. Legg Mason Small-Cap Quality Value ETF (SQLV)
  12. United States 3x Short Oil Fund (USOD)

The 22 ETFs removed from ETF Deathwatch due to improved health:

  1. iShares Interest Rate Hedged 10 + Year Bond ETF (CLYH)
  2. WisdomTree Emerging Markets Dividend Fund (DVEM)
  3. WisdomTree Europe Domestic Economy Fund (EDOM)
  4. SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF (EEMX)
  5. Oppenheimer ESG Revenue ETF (ESGL)
  6. Cambria Emerging Shareholder Yield ETF (EYLD)
  7. iPath GSCI Total Return Index ETN (GSP)
  8. PowerShares Dynamic Networking Portfolio (PXQ)
  9. SPDR MSCI World StrategicFactors ETF (QWLD)
  10. CSOP FTSE China A50 ETF/United States (AFTY)
  11. FlexShares Core Select Bond Fund (BNDC)
  12. First Trust Global Engineering and Construction ETF (FLM)
  13. Xtrackers Japan JPX-Nikkei 400 Equity ETF (JPN)
  14. Principal Price Setters Index ETF (PSET)
  15. ProShares Short Real Estate (REK)
  16. Global X MSCI SuperDividend Em (SDEM)
  17. iShares Edge MSCI Min Vol USA Small Cap ETF (SMMV)
  18. PowerShares S&P 500 Momentum Portfolio (SPMO)
  19. SPDR MFS Systematic Core Equity ETF (SYE)
  20. iShares Edge MSCI Multifactor Technology ETF (TCHF)
  21. ProShares Ultra Consumer Goods (UGE)
  22. Spirited Funds and ETFMG Whiskey & Spirits ETF (WSKY)

Looking for more? See our ETF Deathwatch Archives

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.