Wednesday, October 2, 2013

Shutdowns of a Different Kind

Yesterday, we covered the U.S. Federal Government shutdown of non-essential activities to the tune of approximately 800,000 employees.  We will continue to closely follow the impact of that shutdown throughout the ETF markets and how our models are viewing these developments.  We turn our sights now to the topic of ETF shutdowns or ETF closures and yesterday’s release of the ETFG Monthly ETP Liquidation Watch.

By way of background, the ETFG Liquidation Watch List is not meant to predict that each month’s listings are those ETPs on the brink of closing.  Rather, the list is intended to assist investors and financial professionals to simply be aware that these funds contain all three characteristics which we think would reasonably bring them under the scrutiny of their respective issuer and hopefully to the attention of any investor or advisor.  These three criteria are simple and very straightforward:

·         Assets Under Management – the ETP currently has AUM of less than $5 million
·         Age – the ETP has been in existence more than 2 years
·         Performance – the ETP has negative trailing twelve month performance

Combined, these parameters identify those ETPs that have had enough time (2 years) to gather meaningful assets ($5M) in order to become profitable but have not done so and additionally have had losing performance for the last twelve month period.

On the October Liquidation Watch List there are 61 ETPs which is slightly less than there were on the September Liquidation Watch List.  Interestingly, out of the approximately 1,500 ETPs in the universe last month, there were 213 that had less than $5M in assets under management, 360 that had negative performance for the training twelve month period and 1,171 that were eligible because they were issued more than two years ago. 

As you can see from the October Liquidation Watch List, the number of overall ETPs that had less than $5M in assets under management decreased slightly to 205, the pool of seasoned ETPs of 2 years or more doesn’t change much month-to-month, but, the number of ETPs out of the overall universe skyrocketed to 519.  This could bring a meaningful impact to the Liquidation Watch as next month rolls around.

To quote one very successful Portfolio Manager recently, "that Watch List is an Advisor's best friend, you wouldn't want to buy an ETP for a client's portfolio and realize after it closes that you could have avoided that mess by simply checking the Liquidation Watch list."   We agree - please take a closer look at this month's Liquidation Watch List to understand if there are names on it in which you may be considering taking positions.

Thank you for reading ETFG Daily Perspectives and please be sure to see our monthly commentary on this topic at


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