ETF Closure Risk Varies Across Categories

November 14, 2022

Last week, we highlighted the percentage of U.S.-listed ETFs currently trading that had a high closure risk. Out of more than 3,000 ETFs in our screener tool, about 28% have been designated as having a high closure risk by data provider FactSet.  

However, that percentage can vary depending on what subset of ETFs you’re looking at.  

For example, of the 313 ETFs classified as thematic, 43% are considered to have a high closure risk. That is consistent with what we know about the wave of thematic ETFs we’ve seen roll out in recent years. Most of those products were launched in 2018 or later.  

Also, they don’t cover major asset classes, but small segments of the market that can cut across traditional sector lines. And, just as broadly based ETFs tend to have wide appeal to investors, the specific nature of thematic ETFs can be limiting.  

The socially responsible category encompasses environmental, social and governance ETFs, other values-based ETFs, clean energy funds and ETFs offering exposure to carbon markets. A total of 192 funds have been categorized as socially responsible, and 40% of those are at a high risk of closure. As in the case of thematic ETFs, the audience to which these products appeal is far narrower than the audience for broad market exposures.  

Meanwhile, buffer ETFs, a rapidly growing part of the ETF space, has 31%—slightly above average—of its funds classified as being at a high risk of closure. That too makes sense: These types of funds often don’t have sticky assets because investors frequently rotate among them tactically based on their market views. However, for these types of ETFs that are part of larger families of products that reset annually with a fund tied to each month, closure is generally unlikely.  

Below-Average Closure Risk 

Unsurprisingly, a category with broader appeal, dividend ETFs are in line with the broad ETF industry, with 28% of the funds in the category falling under the high closure risk designation. The percentage remains the same for high dividend yield ETFs.  

There are 78 ETFs covering the Treasury security space, but only about 10% of those have high closure risk. Treasury bonds are generally considered to be risk free, so they will always see demand from investors looking to manage their portfolio risk.  

 

Contact Heather Bell at [email protected] 

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