Last Friday (7/24/09), one ETF died and a new ETF was born. However, you won’t see these events in most ETF statistics because it was the same fund.

Claymore/Great Companies Large-Cap Growth Index ETF was launched on 4/3/07 under the ticker symbol XGC. The ETF did not perform very well. From inception through 11/24/08, its -58.5% return trailed far behind the -37.6% return of iShares Russell 1000 Growth Index Fund (IWF), a widely followed large cap growth benchmark.

In the subsequent eight months (11/24/08 – 7/24/09) its fortune changed as XGC gained +56.8% to the +27.5% advance of IWF, but its lifetime performance still lagged by more than 15%. Having failed to attract assets, XGC shows up often in zero volume reports, and has been a monthly regular in ETF Deathwatch.

After the close on July 24, the Claymore/Great Companies Large-Cap Growth Index ETF ceased to exist. Yet the ticker symbol lives on and continues to trade. In fact, it had more volume this week than in the previous three weeks combined and the most trading activity in more than two months.

Why? As of Monday (7/27/09), the fund sports a new name and a new objective. XGC is now Claymore/BNY Mellon International Small Cap LDRs ETF (new fund summary).

It is not unusual for ETFs and mutual funds to tweak their objectives. For example, some funds might change “small cap” to “small and mid cap” in order to expand their investment universe. The change to XGC was not a tweak and was not intended to enlarge its universe – it was an Extreme Makeover.

On Friday (7/24/09), XGC was 100% US large cap growth. On Monday (7/27/09), XGC was 100% non-US small cap. There is zero overlap between the portfolio before and after. This is not a change. This is a new fund.

You are probably thinking that such a drastic change would require shareholder approval, and you are right. But remember, this fund failed to attract new investors, so the overwhelming majority of the assets were seed money contributed by the sponsor. Gaining shareholder approval was probably not an obstacle.

So why do it? Why not avoid such an extreme makeover and just shut down the prior version and launch a new one? One reason is simply “because they could.” There may be significant cost savings with this approach, and Claymore can avoid the stigma and embarrassment of having to shutter another fund.

My guess, however, is that the real reason is the desire by Claymore to preserve the track record. Although the performance of XGC has significantly lagged other large cap growth funds, it has done better than its “new competition”, namely SPDR S&P International Small Cap ETF (GWX) and WisdomTree International Small Cap Dividend Fund (DLS). And come next April, it will be able to boast a three-year track record, something that seems important to the Claymore team. Just don’t forget to notice the asterisk and to read the associated disclaimer whenever you see its performance listed.

Disclosure: no positions