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Many Active ETFs Struggle to Survive


Half of all actively managed ETFs are on a popular industry watch list of funds that have low trading volume and assets under management, which could make them more likely to close.

Ron Rowland at Invest With an Edge says his “ETF Deathwatch” list has risen 131% the past year. He said 10 new exchange traded products were launched the past month, while 24 joined the list.

“For the past year or more the list has been accelerating more rapidly,” Rowland said in a CNBC report Wednesday from Herb Greenberg.

“I started this because with all the new ETFs coming to market, I was having trouble keeping up with all of them,” Rowland said in the article. “There were too many coming to market too fast. Not all of them would survive.”

There are 1,486 listed ETFs, while 229 have been delisted in the history of the business, according to the story.

In the latest month, 23 products joined Rowland’s ETF Deathwatch list, taking the overall count to 377 – 273 ETFs and 104 exchange traded notes, or ETNs.

Many of the funds on the list are actively managed rather than index-tracking.

PIMCO Total Return ETF (BOND) , which is managed by bond guru Bill Gross, has made a big splash on the active side of the business, although most of the assets in the ETF industry reside in passively managed funds that replicate benchmarks. [PIMCO Helps Put Actively Managed ETFs on the Map]

“There are now 60 actively managed funds, up from 1 in 2008. So far, seven (or 11.7%) have failed,” CNBC’s Greenberg reports.

Rowland said there are several ETFs on the watch list from major fund companies.

“My guess is they know the day is coming when assets are going to transfer from mutual funds to ETFs, and they understand they won’t get nearly the fees they get from ETFs as mutual funds,” he told CNBC. “But at least they’ll be able to say they have a track record.”

Rowland’s list excludes new ETFs with less than six months of track record to give them a so-called incubation period. Products are added to the list when average daily trading volume falls below $100,000 — or if assets drop under $5 million.

The theory is that products with low assets aren’t as profitable, and may end up being closed by their providers. However, larger ETF providers are better-positioned to subsidize unpopular funds than smaller firms.

PIMCO Total Return ETF has attracted significant assets since the March launch due to the vaunted track record of manager Bill Gross. Many financial advisors like to see at least three years of track record before investing with active managers.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.