48 Zombie ETFs

September 02, 2010

You are right, Dave, that some small ETFs can be late bloomers, attracting significant assets after months or years of gathering dust.

But it’s pretty rare. For the most part, zombie funds are zombie funds, and we’d be better driving a silver stake through their hearts.

In case you missed it, Dave and I have been debating whether the ETF industry should shut down funds to “clean house.” I argued that earlier in a blog “Industry Should Close 200 More ETFs,” and Dave thought I was a cold-hearted, anti-innovation fool in his riposte titled “Low Asset ETFs Can Be Tradable.”

One of the things that Dave disliked about my original post is that I tarred all funds with less than $10 million in assets under management as candidates for closure. While I think that’s generally true, there’s not much nuance there, so it pays to dig a little deeper and come up with a more focused list of “dead funds walking.”

To do this, I started with the list of 206 funds with less than $10 million in assets. These funds are candidates for closure simply because they lose money for issuers. Most issuers are in the business of making money, so this is not an attractive proposition.

To narrow down the list, I then screened for funds that had less than 5,000 shares of trading on average over the past three months. These funds are truly unloved, with neither assets nor trading; they just sit in the corner and whimper. They also create problems for investors, who can be locked into the funds by wide spreads and uneven liquidity.

This reduced the worrisome list of ETFs to 173.

From here, I screened out all HOLDRS and ETNs. HOLDRS cannot be closed, and ETNs are so cheap for issuers to run that closing them is beside the point.

This reduced the number of ETFs on our watch list to 113.

From there, I screened out all ETFs that have been on the market for less than a year. You have to give funds a chance to attract critical mass.

That left 41 funds.

To Dave’s point, some of these funds are just waiting for their moment to shine. I can construct a world where the CurrencyShares Russian Ruble ETF sudden turns red hot. But the First Trust US IPO ETF (NYSEArca: FPX)? That fund has been on the market since April 2006, has only $9.98 million in assets and trades just 3,500 shares a day. I just don’t see the IPO idea “suddenly” catching on. And the Claymore/Ocean Tomo Growth ETF (NYSEArca: OTR), which has pulled in $6 million in assets in the last three years? The PowerShares FTSE Nasdaq Small Cap ETF (NasdaqGM: PQSC), which launched in April 2008, has just over $1 million in assets and trades just 700 shares a day?

Goner, goner, goner.

Not every fund on my list of 41 is doomed, but if I were a betting man, I’d guess that half these funds will close in the next 12 months.

And you know what? That wouldn’t be a bad thing, either.

 

41 Unloved ETFs

Ticker

Name

$AUM
(Mln)

Average Daily Volume 3-Mo (Shares Traded)

Inception Date

FPX

First Trust
US IPO

9.9754

3,508

4/13/2006

EEN

Claymore/BNY Mellon EW Euro-Pacific LDRs

3.5653

535

3/1/2007

OTR

Claymore/Ocean Tomo Growth

5.98

2,685

4/2/2007

XGC

Claymore/BNY Mellon International Small CAP LDRs

7.1645

2,234

4/3/2007

CZA

Claymore/Zacks Mid-Cap Core

4.99896

3,437

4/3/2007

RTL

iShares FTSE NAREIT Retail Capped

7.35432

3,906

5/4/2007

FIO

iShares FTSE NAREIT Industrial/Office Capped

8.567545

4,841

5/4/2007

PJO

PowerShares FTSE RAFI
Japan Portfolio

7.26694

1,203

6/25/2007

LVL

Claymore/S&P Global Dividend Opportunities

8.78464

4,705

6/25/2007

EXB

Claymore/Beacon Global Exchanges, Brokers & Asset Managers

2.8776

733

6/27/2007

CRO

Claymore/Zacks Country Rotation

3.094

1,699

7/11/2007

IFEU

iShares FTSE EPRA/NAREIT Developed Europe

8.073

1,370

11/16/2007

IFNA

iShares FTSE EPRA/NAREIT North America

9.2225

3,589

11/16/2007

LTL

ProShares Ultra Telecommunications

5.767709

2,727

3/27/2008

LTL

iShares FTSE NAREIT Mortgage Plus Capped

5.767709

2,727

3/27/2008

TLL

ProShares UltraShort Telecommunications

1.940087

3,533

3/27/2008

PQSC

PowerShares FTSE NASDAQ Small Cap

1.157

685

4/3/2008

UHN

United States Heating Oil

7.698

3,829

4/9/2008

PMA

PowerShares Active Mega Cap

3.32559

985

4/11/2008

PQZ

PowerShares Active Alpha Multi Cap

2.451075

2,173

4/11/2008

IRY

SPDR S&P International Health Care Sector

9.69421

3,292

7/16/2008

PTRP

PowerShares Global Progressive Transportation Portfolio

5.32

879

9/18/2008

PBTQ

PowerShares Global Biotech Portfolio

3.405

1,276

9/18/2008

PSTL

PowerShares Global Steel Portfolio

9.95

4,222

9/22/2008

TZO

iShares S&P Target Date 2035

3.018

758

11/7/2008

TZE

iShares S&P Target Date 2015

5.98242

998

11/7/2008

TZI

iShares S&P Target Date 2025

7.55895

1,045

11/7/2008

TZD

iShares S&P Target Date 2010

2.94022

1,256

11/7/2008

TZL

iShares S&P Target Date 2030

9.08742

1,522

11/7/2008

XRU

CurrencyShares Russian Ruble

6.598

2,447

11/13/2008

RWV

RevenueShares Navellier Overall A-100

9.48069

1,728

1/23/2009

KME

SPDR KBW Mortgage Finance

1.880429

483

4/29/2009

GVT

Grail American Beacon Large Cap Value

1.573529

1,107

5/4/2009

EEO

Emerging Global Shares Dow Jones Emerging Markets Energy Titans

9.16164

1,148

5/21/2009

EZJ

ProShares Ultra MSCI
Japan

8.869841

3,926

6/4/2009

EFO

ProShares Ultra MSCI EAFE

9.358505

4,606

6/4/2009

JPX

ProShares UltraShort MSCI Pacific ex-Japan

2.549405

4,009

6/18/2009

JVS

JETS Dow Jones Islamic Market International

2.1911

95

7/1/2009

QABA

First Trust NASDAQ ABA Community Bank

9.336

4,128

7/1/2009

UWC

ProShares Ultra Russell3000

5.209221

714

7/2/2009

TWQ

ProShares UltraShort Russell3000

2.482754

3,703

7/2/2009

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