QuantShares, the firm that first took steps to enter the ETF market in January 2010, is shutting down three of its original lineup of seven market-neutral equities ETFs in early November due to their inability to attract assets.
In a filing submitted to U.S. regulators, the ETF market newcomer said that trading in the three funds would stop on Nov. 2 and the funds would be completely liquidated by Nov. 19. The funds and their current assets are:
- QuantShares U.S. Market Neutral High Beta Fund (BTAHF), $4.8 million
- QuantShares U.S. Market Neutral Anti-Momentum Fund (NOMO), $3.2 million
- QuantShares U.S. Market Neutral Quality Fund (QLT), $3.4 million
Altogether, the firm has some $50.4 million in total assets under management, according to data compiled by IndexUniverse.
QuantShares first started rolling out its roster of market-neutral ETFs a year ago, looking to tap into a growing category of so-called enhanced-beta ETFs that seek to build on the more-straightforward market exposure of capitalization-weighted indexes that select securities solely based on their market strategies.
The firm had to climb two major mountains right off the bat, the first being that alternative indexation is still a relatively new trend in the world of indexing and there’s a lot of investor education that has to go into that. Secondly, there’s growing sentiment—and evidence—that there’s little room for newcomers in an ETF market that has 90 percent of its assets tied to 10 percent of fund providers.
The three closures brings to 92 the number of ETF shutterings so far this year. That’s more than three times as many as the 30 that shut in 2011 and almost twice as many as 2010’s 49 closings. Still, despite the accelerated pace of fund shutdowns, total U.S.-listed assets of $1.3 trillion are still quite close to an all-time record.
Smart Beta Challenges
Russell Investments is perhaps the most recent example of a firm that failed to get traction marketing what it called "intelligent beta" ETFs, and ended up shuttering all 25 funds this month, with the exception of one actively managed ETF.
Indeed, QuantShares said today in a press release that it had looked for its strategies to resonate with institutional and retail investors alike, but lower-than-expected demand and trading volume was causing it to trim the offering lineup.
That’s not to say QuantShares is throwing in the towel.
The firm will continue to market its other four existing ETFs, and also last month put six factor-based ETFs into registration with the Securities and Exchange Commission that use smart indexes to tap into everything from dividends to beta to momentum.
Between Nov. 2 and Nov. 19, the funds will liquidate their portfolio assets, the filing said.
Investors still holding on to shares of any of these funds on liquidation day will receive cash distributions equal to the net asset value of their shares.
No transaction fees will be incurred in connection with that distribution, although that payment could be considered a taxable event, the company said.
The other four QuantShares market-neutral funds will continue to trade normally.
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