The ETF industry was 10 years old before it had its first casualty in 2003. A total of four funds closed that year, a group of bond ETFs known as FITRs. 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 five ETFs meet their demise.
All that changed in 2008 with the delisting of 58 ETFs and ETNs. The industry’s lifetime toll surged from 5 to 63. 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
|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|
|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|
|30||HHE||HealthShares Cardio Devices||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|
|41||HHP||HealthShares Orthopedic Repair||09/19/2008|
|42||HHB||HealthShares Patient Care Services||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|
|57||HHV||HealthShares Drug Discovery Tools||12/23/2008|
|58||HRJ||HealthShares European Drugs||12/23/2008|