Global X, the relatively new ETF issuer that has already gathered more than $1 billion in assets, announced that it will close eight of its ETFs in the first quarter of 2012. Each of the ETFs to be closed has struggled to build assets during relatively short times on the market; they all launched at some point during 2011, and most will be less than a year old when they close their doors for good. The ETFs to be closed include:
- Russell Emerging Markets Growth ETF (EMGX)
- Russell Emerging Markets Value ETF (EMVX)
- Mexico Small-Cap ETF (MEXS)
- Oil Equities ETF (XOIL)
- Farming ETF (BARN)
- Fishing Industry ETF (FISN)
- Food ETF (EATX)
- Waste Management ETF (WSTE)
The closures will eliminate a big part of the “Special Opportunities” suite of ETFs offered by Global X; only the Auto ETF (VROM) and Social Media ETF (SOCL) will remain in that offering. Though the move reduces the number of Global X ETFs by more than 20%, these funds represent a very small portion of the company’s ETF assets. The most popular Global X ETFs include the Silver Miners ETF (SIL) and Uranium ETF (URA), which combine for about $500 million in AUM.
Global X has launched 22 ETFs so far in 2011, beginning with its Aluminum ETF (ALUM) in early January and remaining active into December with the debut of two Nasdaq ETFs (QQQV, QQQM) and the first pure play Greece ETF (GREK).
Are ETF Closures Accelerating?
Heading into 2011, it was widely expected that the ETF industry would experience significant contraction, given that the small asset bases for hundreds of funds made it difficult for them to turn a profit. For much of the year, fund closures were sparse, with only a handful of closings. The consolidation has accelerated in recent weeks, however, with multiple issuers taking steps to cut small funds form their lineups. Jefferies recently decided to pull the plug on a pair of ETFs focusing on stocks of commodity-intensive companies, and IndexIQ announced the end of the road for three of its international equity ETFs [see How To Survive An ETF Liquidation].
Similar to Global X, the IndexIQ announcement involved ETFs that were generally young and had not had much opportunity to build assets. The challenging economic environment so far this year has perhaps made it difficult for these products to generate impressive track records, which could make long-term success difficult [see Cost Competition: Inflows Surge For Cheap ETFs].
The wave of ETF closures could only be starting. According to data from the National Stock Exchange, there were 230 exchange-traded products that had assets of $5 million or less at the end of November. Almost 570 ETPs, representing close to half of the total industry, had assets of $25 million or less. That threshold is a general rule of thumb for profitability, though it can be considerably higher for ETFs with low expense ratios. Though many of those ETFs are young, recently-launched products, some have been around for years without generating much in the way of investor interest.
According to the ETF Deathwatch list maintained at InvestWithAnEdge.com, there were 242 products that were in danger of shutting down at the end of November. All of the Global X ETFs now on track to be closed were included except BARN, which wasn’t yet six months old.
Even after closing down these small funds, the Global X lineup will still consist of about a dozen ETFs with under $5 million in assets.
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Disclosure: No positions at time of writing.