Claymore Shuts Shipping ETF ‘SEA’

April 28, 2010

Claymore has shuttered its shipping ETF 'SEA,' but not for lack of assets. It couldn’t get enough shareholders to vote on a change in investment adviser, and it’s already filed to launch another shipping fund using the same name.

Claymore Securities, the Lisle, Ill.-based money management firm known for its niche investment strategies, was forced to close its shipping-industry ETF because a shareholder vote on a proposed change in the fund’s investment advisory agreement didn’t attract enough voters to establish a quorum.

The company, acknowledging that this may be the first time in the history of ETFs that a fund has closed for this reason, said all its other ETFs and closed-end funds reached quorums within the allowable period and successfully approved new investment advisory agreements. The votes were related to Claymore’s acquisition by Guggenheim Partners in October, the company said in a press release.

The company said 91 percent of those who voted approved the new advisory agreement for the Claymore/Delta Global Shipping Index (NYSEArca: SEA), and while the lack of a 50 percent quorum forced the closing, it's already filed with regulators to launch a successor product that will track the same index and trade with the same symbol, “SEA.” The fund had gathered $152.5 million in assets.

“The Fund’s significant non?U.S. shareholder presence plus the large number of shares held anonymously made it difficult to solicit shareholder consent,” Claymore Managing Director William Belden said in the prepared statement.

An ETF First

Claymore needed at least half of “SEA’s” shareholders to achieve the quorum, but only gathered between 5 and 10 percent to vote on the measure, Belden said in a telephone interview.

“For ETFs, to my knowledge, this has never occurred,” Belden said in the interview.

He added that the process of proxy solicitation can be difficult. He noted, for example, that iShares experienced some challenges when it went through a similar change in advisory agreements with its ETFs following BlackRock’s purchase of the iShares franchise from Barclays Global Investors. But he stressed that in each case, BlackRock reached the 50 percent threshold.

He said the fact that many investors used “SEA” as part of shorter-term, sector rotation strategies may have made the vote-solicitation process more difficult to the extent that some shareholders didn’t own the fund anymore by the time Claymore reached out to them.

The fund’s last day of trading was April 27, and all shareholders remaining on April 28 will receive a cash payout following liquidation of the underlying securities. That distribution will include any capital gains and dividends, the company said. The fund lost about 3 percent on its last trading day, settling at $15.87 per share.

“Claymore believes there is significant interest in the marketplace for a shipping ETF and that investors are seeking exposure to the shipping industry,” Belden said in the statement.

He said Claymore filed with the Securities and Exchange Commission on April 27 to register the new “SEA” ETF, but declined to say when the fund might be rolled out.

“The SEC is working with us to make this process take as little time as possible.”

New Directions

While Claymore has made clear that it intends to preserve its reputation as a purveyor of niche ETF strategies, the Guggenheim acquisition is sending the company in new strategic directions. Last month, it rolled out a number of broad-based funds that indicate how the presence of Guggenheim will change Claymore.

The broadest of the new ETFs is the Wilshire 5000 Total Market Index ETF (NYSEArca: WFVK). It competes with similar offerings from firms including State Street Global Advisors, Vanguard and BlackRock.

SSgA’s fund, the SPDR Dow Jones Total Market ETF (NYSEArca: TMW), is the closest competing fund to Claymore’s Wilshire 5000 ETF. Until about a year ago, TMW was based on the same Wilshire index as WFVK, and even today tracks a very similar benchmark. Claymore’s new product beats TMW on fees, charging 0.12 percent in annual expenses compared with 0.20 percent for TMW.

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