Online discount-brokerage firm Scottrade is pulling the plug
on its entire FocusShares ETF family tracking Morningstar indexes
for failure to attract investors after 16 months on the
The 15 ETFs together had a little more than $100 million in
assets. The most popular of the bunch,Focus Morningstar U.S.
Market Index ETF (
) had nearly $20 million in assets, below the $25 million to $50
million needed for providers to break even. It traded about
12,000 shares a day.
That was robust compared withFocus Morningstar Communications
Services Index ETF (
), in which no shares trade most days.
Their last day of trading will be Aug. 17. They will start to
liquidate on Aug. 20 and will be closed to new investors. Any
shareholders remaining as of Aug. 30 will get a cash distribution
of the funds' net asset value plus any capital gains and
FocusShares closed its first raft of ETFs in October 2008
after about 11 months of trading. They included ETFs tracking the
homeland security industry,Wal-Mart (
) suppliers and the ISE SINdex of firearms, tobacco, alcohol and
Scottrade Financial Services bought out FocusShares in June
2010 and launched the raft of ETFs tracking Morningstar indexes
in March 2011. Following Vanguard, Fidelity and Schwab's lead,
Scottrade offered commission-free trading and rock-bottom annual
management fees, which were the lowest in their category. FMU
charged merely 0.05% of assets annually.
"Their failure was due to poor distribution and marketing,"
said Christian Magoon, CEO of Magoon Capital. "It seems to have
been a cultural challenge for a firm like Scottrade to integrate
investment products into their business model of order
"They failed to capitalize on the brand of Scottrade combined
with Morningstar," said Jim Farrish, founder and editor of Sector
Exchange.com. "Those two names have market clout."
The closure comes less than a week after FocusShares crowned a
new president and CEO, Scott Golde.
Ron Rowland's ETF Deathwatch list at InvestWithAnEdge.com grew
128% over the past 12 months as of July. It now lists 354
exchange traded products: 250 ETFs and 104 ETNs.
These make up about a fourth of all U.S.-traded ETFs. Ten of
the funds did not trade a single share in June, Rowland says. He
counts 12 other ETFs tracking Morningstar indexes that are trying
to survive. Claymore, which was bought by Guggenheim, closed down
three ETFs based on Morningstar SuperSector Indexes in December
The most anemic ETP,iPath Long Enhanced MSCI EAFE Index ETN (
), hasn't traded a single share since January.
To be added to the list, ETFs must be at least 6 months old,
have less than $5 million in assets for three straight months, or
have less than $100,000 in average daily trading volume for three
straight months. The list excludes ETFs that have more than $25
million in assets in the past two months.