First Bridge ETF landscape & risk report (Part 6 of 6)
Shutdown Risk: Large Number of Sub-Scale ETFs
Though ETF assets in the US have been growing, the most successful funds account for a majority of the assets. Currently, 47% of ETFs in the US are sub-scale (
Source: First Bridge global ETF database; Data as of Nov 29, 2013
In theory when an ETF delists and liquidates, investors should receive cash equivalent to the fair value of the securities held in the fund. In practice however, most money managers would prefer to avoid this scenario. For example, a delisted ETF may not always liquidate immediately. There may also be downsides related to reputation and taxation. Having a simple way to identify shutdown risk can be important.
Several idiosyncratic factors could cause an ETF to shut down e.g. an ETF sponsor exiting the market entirely. This makes it difficult to predict accurately which ETF will be shut down. The net asset level for an ETF is the simplest indicator for monitoring potential shutdown. We judge ETF net assets of
As of end November 2013, there were 1531 ETPs listed in the US. Of these, only the 1373 listed for at least a year prior to this cutoff date (the ‘eligible universe’) have been included in this table, since recently launched ETPs need time to gather assets. Almost half the ETPs listed fall in the ‘high risk’ of shutdown category.
Browse this series on Market Realist:
- Part 1 - ETF landscape & risk report: ETF assets grow to $1.7 billion in 2013
- Part 2 - Classifying recent ETF launches: Yield, Short Duration, Currency Hedges
- Part 3 - Must Know: Measuring correlation drift in ETFs