Replacements For Disappearing ETFs

by on September 13, 2012 | ETFs Mentioned:

No one can argue just how far the ETF industry has come since the debut of the first ever exchange-traded fund in 1993. The investment landscape now boasts a lineup of nearly 1,500 offerings, allowing investors to gain cheap and easy access to nearly every corner of the investable universe. From the plain-vanilla funds to the more complex products, issuers continue to raise the bar, providing innovative tools to all walks of investors. However, the ever-evolving product roster has also led to waves of ETF closures as issuers struggle to attract enough interest from investors. Although some might view this as a sign of weakness for the space as a whole, it is important to remember that the industry is still relatively young and that closures are just a natural part of the industry’s life cycle [see also Why You Shouldn't Worry About ETF Closures].

In the past two months, investors said goodbye to a slew of products from issuers IndexIQ, FocusShares, and Direxion. But of course with more than 1,400 options, there are plenty of alternatives investors can pick to replace these disappearing ETFs:

Replacing IndexIQ’s South Korea Small Cap ETF (SKOR)

IndexIQ, the issuer best known for its Hedge Multi-Strategy Tracker ETF (QAI), closed its IQ South Korea Small Cap ETF (SKOR) on August 17th of this year. Despite being the only fund to offer targeted exposure to the small capitalization sector of the South Korean equity market, SKOR failed to attract significant assets and interest from niche investors. For those looking to capture this particular corner of the market, the options are a bit limited [create customized ETF analysis with the ETF Analyzer]:

  • MSCI South Korea Index Fund (EWY): With nearly $2.7 billion in total assets and an average daily trading volume of over 1.6 million shares, this ETF is by far the largest and most liquid fund to offer exposure to the performance of the South Korean equity market. EWY’s portfolio of over 100 individual securities are, however, dominated by giant and large cap stocks.
  • South Korea AlphaDEX Fund (FKO): Another South Korean ETF primarily comprised of large cap stocks, FKO utilizes the unique AlphaDEX methodology to provide exposure to this corner of the market. The strategy involves a quant-based screening techniques that attempts to identify the stocks poised to generate excess returns relative to broader benchmarks.
  • MSCI All Country Asia ex Japan Small Cap Index Fund (AXJS ): Although not a pure play on the South Korean equity market, this fund does provide exposure to small cap stocks from Asian markets (excluding Japan). Currently, South Korean small cap equities make up nearly 17.5% of the fund’s total assets.
  • MSCI Emerging Markets Small Cap Index Fund (EEMS): This ETF focuses on the small capitalization segment of emerging market equities. With over 660 individual securities in its portfolio, EEMS dedicates over 16% of its assets towards small cap stocks from South Korea.

Alternatives For FocusShares’ ETFs

FocusShares, which made its debut in April of 2011, shuttered its lineup of 15 ETFs last month. Although many of the funds were among the cheapest ETFs in their respective ETFdb Categories and all were eligible for commission-free trading in Scottrade accounts, the products were not able to accumulate significant and sustainable assets over their short year-long span. Thankfully for those investors looking for alternatives to the now closed FocusShares’ ETFs, there are plenty of options [find ETFs for every investment objective with the ETF Screener]:

Ticker Closed ETF ETFdb Category Alternative ETFs
FMU US Market Index ETF All Cap Equities VTI
FLG Large Cap Index ETF Large Cap Blend Equities SPYIVVVVIWB
FMM Mid Cap Index ETF Mid Cap Blend Equities MDYIJHEWRM
FOS Small Cap Index ETF Small Cap Blend Equities IWMIJRVBSCHAIWC
FBM Basic Materials Index ETF Materials XLB, VAWRTM
FCQ Communication Services Index ETF Communications Equities VOX, IYZ, XTL
FCL Consumer Cyclical Index ETF Consumer Discretionary Equities XLYVCR, FXDRCD
FCD Consumer Defensive Index ETF Consumer Staples Equities XLP, VDCKXIRHS
FEG Energy Index ETF Energy Equities XLE, VDE, IYE
FFL Financial Services Index ETF Financials Equities XLFVFHIYF
FHC Health Care Index ETF Health & Biotech Equities XLVIBBVHTXBI
FIL Industrials Index ETF Industrials Equities XLIIYJVIS
FRL Real Estate Index ETF Real Estate VNQIYRICFRWR
FTQ Technology Index ETF Technology Equities XLKVGTIYW
FUI Utilities Index ETF Utilities Equities XLUVPUIDU

Swap Out Closed Direxion ETFs With These Picks

Direxion is by far one of the largest issuers of leveraged exchange-traded funds with lineup of nearly 50 Bear & Bull products. Earlier this month, however, the issuer closed nine of its 3x leveraged funds. Unfortunately, four of these ETFs do not have any leveraged alternatives: Daily Agribusiness Bull 3X Shares (COWL), Daily Agribusiness Bear 3X Shares (COWS), Daily India Bear 3X Shares (INDZ) and Daily Retail Bear 3X Shares (RETS). For the other five funds, investors have multiple ETF options to swap out the closed Direxion offerings [see the Truth About Leveraged ETFs]:

Ticker Closed ETF ETFdb Category Alternative ETFs
MATS
Daily Basic Materials Bear 3X Shares Leveraged Equities
SMN
SICK
Daily Healthcare Bear 3X Shares Leveraged Equities
RXD
LHB Direxion Daily Latin America Bear 3X Shares Leveraged Equities BZQ, SMK
BRIL Direxion Daily BRIC Bull 3X Shares Leveraged Equities UBRRUSLINDLYINNXPP
BRIS Direxion Daily BRIC Bear 3X Shares Leveraged Equities BZQRUSSFXPYANG

Follow me on Twitter @DPylypczak

[For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro]

Disclosure: No positions at time of writing.