Liquidation Watch List Hits Record High

The ETF industry continues to grow but is also consolidating and leaving many products at surprisingly low asset levels. The trend has resulted in a record 79 products meeting the three criteria for inclusion on the ETF Global^® Monthly Liquidation Watch List.

ProShares and iPath account for more than half of the 79 names and each sponsor has three additions to this month’s list.  The 22 iPath products account for more than a quarter of that sponsor’s 81 issues and the 24 from ProShares account for 17% of their 141 ETFs.  Having so many products with less than $5 million under management, after trading for more than 2 years, may indicate that these sponsors have business models that are viable with small funds.  However, those 2 criteria could be too much to overcome if the sponsors decide to improve their margins by trimming their offerings. 

Barclays could do that by consolidating their 7 specific iPath industrial metal ETNs that appear on this month’s list into their single broad industrial metal ETN (HEVY) which also appears.  The 8 products have a combined AUM of less than $16 million and generate less than $130,000 in total fees.  The 24 ProShares ETFs tend towards the leveraged short category tracking niche indices hitting new highs month after month.  With only $758K in AUM, markets would not miss the ProShares UltraShort Russell MidCap Value Fund (SJL) especially considering that ProShares has 3 other leveraged short mid cap funds.  All of them meet the third criteria of negative performance over the past year which could be the final straw for sponsors looking to boost margins; even if closing a bunch of short funds could signal a market top. 

Other sponsors have trimmed their offerings by closing funds that were larger than these iPath and ProShares products.  It is impossible to know the full effects of those closures but you should look to avoid the slippage that can result from a liquidation.   We quantify the monthly list and write about it at Wealthmanagement.com as another tool to keep you in the best products available in the burgeoning ETF marketplace.  

Our predictive Quant model ranks the SPDR S&P Metals and Mining Fund (XME) in first place to close out the week and SPDR’s S&P China Fund (GXC) gets today’s 10 Green Diamond Rating again.  Thank you for placing your trust in ETF Global^® and have a nice weekend.