Direxion To Shut Its Airline ETF

Direxion Shares, the Newton, Mass.-based money management firm known for its bull-and-bear pairs of triple-exposure exchange-traded funds, took a step back toward its core strategy by revealing that it will shutter its single-exposure airline ETF next month.

The Direxion Airline Shares ETF (NYSEArca:FLYX), an incongruous offering for a company that has had success as a purveyor of leveraged and inverse funds, has gathered less than $3 million since its rollout in December 2010. Its main competitor, the Guggenheim Arca Airline ETF (NYSEArca:FAA), has $18.6 million in assets.

“With declining interest in a non-leveraged airline industry ETF, we feel it is in the best interest of the shareholders to close the fund and stick to the product for which we are best known,” Direxion President Dan O’Neill said in a press release.

Direxion said FLYX will stop trading on Arca, the New York Stock Exchange’s electronic platform, on Oct. 10. Between Oct. 10 and Oct. 17, the fund will be in the process of closing down and liquidating its portfolios. Direxion stressed that during that time period, shareholders will only be able to sell their shares to certain broker-dealers, and there’s no assurance that there will be a market for the ETF.

If a recent McKinsey ' Co. study turns out to be on the mark, the pace of ETF shutdowns is likely to accelerate as the competitive landscape in the exchange-traded fund industry grows more intense. McKinsey said that between 2000 and 2007, just 10 ETFs were shuttered. In the next three years, more than 150 were shut down.

Direxion’s announcement follows by a week news that Javelin Funds plans to shutter its JETS Contrarian Opportunities Index Fund (NYSEArca:JCO) by next month. Also, early in summer FaithShares threw in the towels on its five funds, and its principals turned their attention to a new venture, Exchange Traded Products, that will help others bring ETFs to market.

Almost exactly a year ago, Javelin said it was shuttering its JETS Dow Jones Islamic Market International Index Fund, saying at the time in a press release that while it still thought the Muslim-specific investment market was prospective, it had had difficulty getting the word out through “marketing channels typically used by ETFs.”

The shutdown of the Muslim fund followed by a day an announcement by Geary Advisors that it was closing two of its funds and exiting the ETF business.

Those closings put the industry on pace to shutter at least 40 funds by the end of 2010. Grail Advisors closed two of its actively managed ETFs in August 2010, while Guggenheim predecessor firm Claymore shut down four funds about a year ago.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.