Monday, February 10, 2014

Feb Liquidation Watch Hits All Time High

As of the beginning of February, we have seen just 4 Exchange-Traded-Products (ETPs) with announced and/or actual closings for the year - a comparatively slow start and significantly below the annualized levels of the most recent years.  While the trend of these recent years certainly suggests that the rate of closures will increase in order to regress to the mean, an increase may be more directly supported by the simple fact that the month of February, with 91 products on the list, achieved another new high in the overall number of ETPs on the ETFG Liquidation Watch List

The breakdown of the February Liquidation Watch reveals that the list is dominated by Equity and Commodity ETPs with 39 and 28 respectively.  Additionally, there are 12 Fixed Income ETPs, 8 Currency ETPs and 4 Multi-Asset ETPs that round out the February report.  While equity products may dominate this month’s Liquidation Watch List in absolute numbers, the commodity ETPs certainly represent a far greater relative percentage of their respective asset class as there are multiple times the number of equity funds within the ETP universe than there are commodity products.

In looking more deeply at what has driven the behavior of the Liquidation Watch, a few interesting trends have emerged.  The number of eligible products who have been in existence for more than two years has increase slightly but remains in a fairly steady range in and around the 1,200 level.  With elevated asset levels and markets just off all-time highs in certain cases, the number of ETPs with less than $5 million in assets under management is actually one of the lowest levels that we have seen on the Liquidation Watch in several quarters.  Therefore, it is fairly clear to see that the growth in the number of products on the list is a direct result of the swelling of products with negative Trailing Twelve Month performance.  Interestingly, the number of ETPs with negative trailing twelve month performance has not only been elevated in recent months but also reached an all-time high this month with 621 ETPs.  To put this in perspective, this represents approximately 40% of the 1,539 ETP universe that we cover.

We will watch these trends closely as the year unfolds and see if these underlying trends in fact continue to come to fruition.  Thank you for reading ETFG Perspectives!

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