BlackRock, the world’s largest ETF provider, plans to liquidate the iShares Diversified Alternatives Trust (ALT), a $57.6 million actively managed exchange-traded fund that has been on the market since October 2009, saying it doesn’t think the security is resonating with investors.
The active fund invests in a mix of equity, fixed-income and currency futures and forwards, and attempts to earn a steady return with limited volatility. It’s been successful at that goal, eking out an annualized gain of 0.87 percent since inception, with relatively low volatility and extremely low correlations to the broader markets.
Those academically sexy attributes have not translated into asset flows, however, as ALT has seen steady outflows for the past two years. ALT’s assets peaked at $141 million in 2011, but have declined in a nearly straight line since then. In the past two years, investors have pulled $58 million out of the fund.
iShares apparently didn’t see that trend turning around anytime soon.
“iShares continually reviews its product range to ensure it meets the evolving needs of our clients,” said Patrick Dunne, head of Global Markets and Investments for BlackRock. “Based on the review and client feedback, it appears this product has a limited role in today’s investment portfolios, and we have seen little long-term demand.”
The fund will continue to trade normally for about the next month, at which point it will liquidate its positions and return proceeds to shareholders.
Change Of Tune For iShares?
ALT’s closure may come as a shock to some investors, as iShares has a reputation for not closing ETFs. The firm has not closed an ETF since 2002, when it shuttered three funds—two sector products that covered the chemical and Internet industries, respectively, and one fund linked to the S'P/TSE 60, an index of Canadian stocks. At the time, iShares said that the funds were either too narrow or duplicative of other products within the iShares lineup.
That’s not the case with ALT, which is iShares’ only “alternatives” ETF, and which provides a broad range of exposure. In ALT’s case, iShares simply didn’t see the product resonating with investors over the longer term.
Interestingly, the closest competitor to ALT—the WisdomTree Managed Futures Strategy ETF (WDTI)—has been quite successful. The WisdomTree ETF has about $126 million in assets, and has pulled in nearly $100 million in net inflows over the past two years.
Those inflows into WDTI are all the more impressive when one considers that the fund has lost an annualized 7.75 percent per year since its inception in January 2011. WDTI is even down over the past year by nearly 4 percent, during which time iShares’ ALT has delivered strong returns.
Still, the two products are quite different, with WDTI tracking a well-known index—the Diversified Trends Indicator—and fitting neatly into the well-established “managed futures” bucket.
ALT was something different—an actively managed product with extremely low volatility—and that, apparently, didn’t resonate with investors long term.
Investors may now wonder if iShares will close more funds in the future. The firm declined to comment, saying only, as did Dunne in his prepared statement, that it continually reviews its product lineup.
It’s worth noting that ALT is not iShares’ smallest ETF, not by a long shot. The firm’s 281-fund ETF lineup includes 75 funds with fewer assets than ALT, including 32 with less than $10 million in assets under management.
Indeed, ALT’s $57 million asset haul makes it the third-largest ETF ever to announce plans to close. The only funds to be shuttered with higher assets were closed due to merger-related issues.
Guggenheim closed down the $153 million Claymore/Delta Global Shipping Index ETF (SEA) in 2010, when it was acquiring Guggenheim, and was unable to muster enough votes from SEA’s shareholders to approve a change of manager . SEA later relaunched and now has $32.3 million in assets.
Also, Merrill Lynch shut the roughly $100 million Telecom HOLDRS that traded under the symbol “TTH” following Van Eck’s 2011 acquisition of some of the HOLDRS products.
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