Tuesday, May 7, 2013

Be careful what you wish for because you might just get it.  Those who bought commodity funds last year looking for non correlation have gotten it with most of those products negative on the trailing twelve months that have seen equities race to new highs.  The products that are also at least two years old and have less than $5 million in AUM meet the three criteria for inclusion on the ETFGsm Liquidation Watch List.  May’s list has been posted under the Analytics button and make sure you can see all three pages.

The73 products represent a new high as the ETF industry consolidates and more funds fall below the $5 million AUM threshold that makes it difficult for a sponsor to meet the obligations of running a public fund.  26 of the 73 are commodity funds, mostly ETNs that present distinct risks involving how backwardation or contango affects tracking error versus their spot markets at the time of liquidation.  Not many long equity funds are down for the past year but some basic materials and emerging market sector funds are.  20 of the 28 equity funds on the list are inverse products and many are close to or even below $1 million in AUM which won’t provide much to the sponsors who typically charge less than 1% in expenses.  The 4 fixed income and 7 currency funds tend to have even lower expense ratios and the 8 multi asset products vary more widely.  Their small size and negative performance casts doubt on the longevity of these funds that have already had two years to prove themselves. 

Larger funds that do not meet all the criteria also close but these 73 have heightened risks of liquidation.  You will notice mostly esoteric products that have elevated risk ratings so if you dabble in those make sure they are not on the list.  The ETF industry has been masterful at bringing innovative products to market and there are plenty if vibrant ones to meet most objectives.  Check the ETFG Scanner to find what you are looking for but make sure any exchange traded products you hold are not on the ETFG Liquidation Watch List.

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