BlackRock’s plans to liquidate the iShares Diversified Alternatives Trust (ALT) are on track, with the suspension of the issue set for May 29 and its ultimate liquidation set for June 4, according to an electronic communique from the New York Stock Exchange, where ALT has its primary listing.
ALT, a $43.3 million actively managed exchange-traded fund that has been on the market since October 2009, isn’t resonating with investors, according to iShares. The shuttering is the first for the world’s biggest ETF firm since 2002.
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 $84 million out of it, and they’ve yanked about $15 million out since iShares announced ALT’s closing a month ago.
ALT’s closure may come as a shock to some investors, as iShares has a reputation for not closing ETFs. The firm hasn’t 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 $82 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 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.
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