ETF Closures Jumped Last Month on Global X Moves
Even as ETFs hit a record $11.7 trillion in assets last month, another measure of the industry's health moved in another direction, as fund closures jumped last month.
In February, 39 funds closed, up 44% from the 27 that shuttered in January and more than double the number from February 2023, according to Bloomberg Intelligence data. While the ETFs that closed were a mix of styles and themes, all were in the equity category.
Still, much of last month's activity is a result of Global X Funds, the thematic issuer with $41.6 billion in assets, closing 19 ETFs. The issuer slashed 18% of its lineup, including a slew of international funds, on Feb. 16. Many of the ETFs that closed had less than $10 million in assets, often a death knell in the industry as it serves as a sign of low investor interest. The Global X MSCI China Communication Services ETF (CHIC) and the Global Metaverse ETF (VR) were among the funds that were liquidated.
ETF closures have jumped over the past year, hitting a three-year high last year as 246 funds shuttered, up from 147 in 2022. This year is on pace to notch the most funds liquidating yet, with the number of closures as of March 2024 at 65, while this time last year there had only been 33 funds shuttered.
Another factor responsible the record number of closures is simply the fact we are a few years out from 2021 when a then record 475 funds were launched. With a proliferation of ETFs on the market, not all are going to be successful, according to etf.com analyst Sumit Roy.
Yet as the ETF graveyard grows, replacements are arriving quickly. Issuers brought 529 new funds to market last year, up from 419 in 2022.
Closing an ETF After Poor Performance
Many of the ETFs that shuttered last month saw abysmal performance in addition to low assets under management. A majority of funds that have closed this year so far have had negative returns year to date, compared to the S&P 500's 7.9% gain, as measured by the SPDR S&P 500 ETF Trust (SPY).
The best performing fund that closed in February was the Global X MSCI China Energy ETF (CHIE), which was up 7% year to date, according to Bloomberg.
Contact Lucy Brewster at lucy.brewster@etf.com.
