Lessons From The Autopsy Of A Closed ETF

November 26, 2014

ETF closures are an annoyance rather than a disaster for investors in the fund.

An ETF closed last week. That’s hardly newsworthy in the dynamic ETF world. In fact, ETF pundits like me generally applaud fund closures as a necessary pruning of the deadwood in the ETF ecosystem. That’s because funds close for a reason: weak investor interest, which often shows up as a tiny asset base and poor liquidity.

It’s the poor liquidity to which I say “good riddance.” Unwary investors can end up getting burned with high execution costs if they stumble into an ETF that barely trades.

But what happens to the poor folks who happen to own the ETF that’s shutting down?

Big picture: They get their cash back. The exact amount of net cash will be affected by the actions taken (or not taken) by the investor, and by market conditions. It could be a tax event for some investors, too.

Investors in a fund that’s closing soon will have two main options.

Hold Till The Bitter End

Procrastinators, take heart. If your fund closes, and you choose to do nothing, that’s not all bad. The fund distributes all its net assets at the end. Here’s what that looks like for a fund that closed on Nov. 20, the VelocityShares Emerging Markets DR ETF (EMDR).

EMDR 2014 Distributions Per Share
Ex date Amount ($) Type
11/21/14 48.64 Liquidation
9/24/14 0.22 Income
6/25/14 0.49 Income


Source: Bloomberg


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