ETF Watch: Fund Closure Pace Slows
The month of May saw eight ETFs shut down—after just one in April.
The latest exchange-traded product to be shuttered is the Credit Suisse X-Links Long/Short Equity ETN (CSLS), which stopped trading last Thursday, May 25.
CSLS brings year-to-date ETF closures to 30 funds, five fewer than the 35 ETFs we saw shutter in the first five months of last year.
In the majority of the cases, ETFs are closed due to lack of assets. Running an ETF can be a costly business, with some estimates pegging issuer costs at anywhere from $250,000 to $500,000 a year to keep one ETF going.
In a recent story about the costs of ETFs, we offered the following example of how the math works:
Say you launched a smart-beta ETF that carries a 0.50% expense ratio. For your ETF to be viable, you would need at least $50 million in AUM just to break even, if your annual costs are at the low end of $250,000. At those levels, with $50 million in AUM, you are merely going to cover your costs.
In other words, it takes money to keep an ETF listed and running. As expense ratios get compressed, that “viability” bar only gets higher, and many of the ETFs that land on the chopping block have far fewer assets than $10 million.
But closures, by and large, are considered a good sign of consolidation in an industry that’s maturing. There are today 2,017 U.S.-listed ETFs on the market, commanding $2.905 trillion in total assets—a market that’s consistently growing at a 20-25% a year pace.
Below are the exchange-traded products that have closed so far this year:
Contact Cinthia Murphy at [email protected]