Friday, December 14, 2012

Happy Friday!  Very little change in today’s top Quant ranks so we thought it is a good opportunity to walk you through an offering we haven’t discussed in a while, the ETF Global Liquidation Watch List.  Found under the Risk Analytics button, this monthly compilation looks to alert you to those funds that are at a higher risk of closing.  When a sponsor pulls the plug on a fund the market makers often do too which can result in tracking error spikes and difficulty getting out of a position.  It usually occurs when a fund hasn't gathered the assets that its sponsor deems necessary to support the operations and marketing of the fund.  We begin our screen for all those Exchange Traded Products with less than $5 million in Assets Under Management which returned 254 ETPs this month.  A sponsor will usually give a fund time to prove itself so we also screen for only those that have existed for more than two years and that returned 1,025 ETPs for December’s list.  Finally we look at those products that have had negative performance for the trailing twelve months and we get 399 names that meet that criterion.  Those products that fall into all three categories get added to the monthly list which amounts to 39 products this month.  That number is lower than usual but this year has already seen more than a usual amount of closures.  Not surprisingly, the average risk score of the funds on the list is a high 6.665 largely due to a skew towards leveraged and inverse products that carry more risk.  Those leveraged and inverse products do not get scored in Quant, nor do non-equity products, but there are 6 of those 39 funds that do and they have a lower than average 48.27 overall Quant score and none are in Quant’s top 100.  So if you are buying the ETFG top Quant rankers you are safe from these funds but if you are planning to build a position in any Exchange Traded Product it can’t hurt to check this list first.  Inclusion doesn't guarantee closure and exclusion doesn't guarantee longevity but a quick look at the ETF Global Liquidation Watch List is a good step in your diligence process.  If you have questions or comments on anything you see at ETF Global please let us know at or call your sales rep.  Thanks for reading and have a nice weekend.

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