2016 A Record Year For ETF Closures

December 29, 2016

This past year has been a record year for ETFs, and we don’t mean launches. The list of ETF/ETN closures has topped out at 128 products for 2016. That’s far beyond the 102 closures that represents the previous record.

“This isn't a sign of weakness; it's a sign of health. The ETF industry is still in the throes of creative destruction,” said ETF.com CEO Dave Nadig regarding the high level of delistings. “It's far better that funds are closed than that they sit around becoming untradable zombies.”

State Street Global Advisors’ SPDR family of ETFs saw the most closures from any single issuer, shutting down a total of 16 funds. What was unusual about SSgA’s list of delisting funds was the fact that some of the products had quite a bit in assets under management (AUM).

The SPDR Nuveen Barclays California Municipal Bond ETF (CXA), for example, had nearly $150 million in AUM when its closure was announced, while other products—including the SPDR S&P BRIC 40 ETF (BIK)—had some $50 million in AUM, a level that is usually considered “safe” with regard to closure threat. So it’s not exactly clear why those ETFs have closed.

BlackRock’s iShares family was in second place, shutting down 14 funds, while ProShares shut down 11 ETFs during the year.

ETN Closures Stood Out

However, exchange-traded notes were the most notable category for closures, with 29 delisting in 2016. Meanwhile, only 18 launched.

Bloomberg’s Eric Balchunas noted previously that “you have twice as many ETNs going away as entering the market—that’s the opposite of the ratio ETFs are seeing.”

It could be that the issue of counterparty risk makes such products unattractive to the banks backing them, and so they’re looking to clean up their balance sheets with regard to liabilities.

 

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