The pace of ETF closures has quickened in 2012. With more than
40 ETF closures already on the books and more on the way, 2012
will see the largest amount of closures in the burgeoning
industry's still young life.
Not surprisingly, the issue of ETF closures has provided
fodder for critics of the industry. As the number of closures has
has been palpable
. Queries have ranged from the benign, such as investors
wondering if their ETFs are vulnerable to closure, to the
implication that this year's elevated number of ETF departures
represents systemic risk to investors and the industry at
There is another side to the story and one that requires
examining the evolution of the ETF business.
"Yes, we're on track for the highest closure rate ever in
2012, but we'll comfortably exceed 200 launches this year," said
Sundrawn Thomas, Managing Director and Global Business Head,
Exchange-Traded Funds Group at Northern Trust. Thomas made the
comments in an interview with Benzinga at the Morningstar ETF
Conference in Chicago.
Thomas highlights the evolution of the ETF business and
cautions that investors need to consider the number of closures
as a percentage of outstanding funds.
"In 2003, just 13 new ETFs came to market, in 2005 the number
was 49," Thomas said. "The number was 300 last year. Look at how
many new ETF sponsors have come into the space. Look at that
backdrop and we'd naturally expect a larger number of new product
launches and closures."
In 2006, there were just 16 ETF sponsors. Since then, that
number has nearly tripled. While forecasting how many ETFs and
ETNs will be shuttered in a given year
is a tricky task
, many analysts choose to point to low asset and low volume
products as vulnerable to closure.
"Time in the market has to be considered," Thomas said. "Many
ETFs that are talked about as closure candidates are only 12-18
months old, so it is not unreasonable to expect low AUM
Thomas noted that of the roughly 300 ETFs introduced last
year, nearly 20 have already eclipsed the much-ballyhooed $100
million in assets under management mark, but just four came from
the top three ETF sponsors - iShares, State Street Global
Advisors and Vanguard.
Northern Trust, the world's 15th-largest asset management
firm, highlights the notion that the ETF arena can accommodate
new competitors. The firm left the ETF business in early 2009,
but came back in September 2011. At that time, Northern Trust
introduced four ETFs, including the FlexShares Morningstar Global
Upstream Natural Resources Index ETF (NYSE:
) and the FlexShares Morningstar U.S. Market Factor Tilt Index
). Those ETFs have over $528 million and $127 in AUM,
FlexShares, a unit of Northern Trust, recently rolled out the
FlexShares Morningstar Emerging Market Factor Tilt Index ETF
) and the FlexShares Morningstar Developed Markets ex-US Factor
Tilt Index ETF (NYSE:
). TLTD and TLTE have raked in over $15 million in AUM combined
in less than three weeks of trading.
"The real question is what should our expectations be," said
Thomas. "It should be part of our expectations that this is an
evolving industry and there are going to be successes and
It can be said Thomas makes a fair, if not excellent point.
After all, McDonald's (NYSE:
) and Starbuck's (NASDAQ:
) have closed restaurants and coffeehouses. That does not mean
they are not successful companies are that consumers do not want
burgers or coffee. Likewise, ETF closures do not mean investor
interest in these products is waning.
For more on ETF closures, click
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