When it was announced earlier this year that the Claymore/Delta Global Shipping Index ETF (SEA) was shutting down, investors were a bit perplexed. SEA has assets of about $150 million and an average daily trading volume of more than 150,000 shares; both metrics are well above the thresholds usually cited as indications of a fund’s viability. It turned out there was much more to the story; SEA’s shuttering had nothing to do with investor interest in the product, but was rather the bizarre result of one of the more bizarre nuances of exchange-traded products.
As a result of its acquisition by Guggenheim in late 2009, the existing investment advisory agreements for Claymore’s ETFs were terminated, and shareholders were asked to approve new agreements as a result of the change in control. Claymore received the required approval on all other ETFs and all of its CEFs, and those voting on the new agreement for SEA were overwhelmingly in favor of the proposed changes. But Claymore was unable to reach a quorum on the new SEA agreement in the allowable time. “Despite significant undertakings to secure the needed proxies during the allowable period, we were not able to obtain sufficient shareholder participation,” said William H. Belden, Managing Director of Claymore in a prepared statement. “The Fund’s significant non-U.S. shareholder presence plus the large number of shares held anonymously made it difficult to solicit shareholder consent.”
SEA’s shutdown was a first in the ETF industry; iShares came close to closing down several ETFs after its acquisition by BlackRock, but was ultimately able to secure the required votes ahead of the deadline.
Claymore noted at the time of the closing that the company planned to launch a successor to SEA in short order, and it seems that the return of the shipping ETF now isn’t far off. A recent SEC filing outlined details for the reincarnation of the shipping ETF, including expense ration (identical to the first version at 0.65%), ticker symbol (still SEA), and underlying index (still the Delta Global Shipping Index). A launch date for the new SEA hasn’t yet been set, but could come within a matter of weeks. Claymore has been busy on the product development front lately, recently rolling out a line of target maturity date corporate bond ETFs.
Plays On SEA
By focusing on the shipping industry, SEA often acted as an effective leveraged play on the broader global economy. Between the bear market lows in March 2009 and its shuttering in late April, SEA had gained more than 110%. It had also seen spikes in trading volumes because of the significant allocation to Greek equities; at the time of its closing, about 20% of SEA’s assets were in Greek stocks, the most of any U.S.-listed equity ETF (read SEA: The Closest Thing We Have To A Greece ETF). In hindsight, SEA’s hiatus came as a blessing to the fund’s investors; the final trading day came just after the S&P 500 had hit its 2010 highs, and at the beginning of a sharp downward correction that saw many risky assets plunge more than 20% in a few weeks.
Disclosure: No positions at time of writing.