The pace of failures has more than doubled in the $7 trillion exchange-traded fund industry so far this year, as volatile markets and fierce competition put pressure on issuers.
(Bloomberg) — The pace of failures has more than doubled in the $7 trillion exchange-traded fund industry so far this year, as volatile markets and fierce competition put pressure on issuers.
Year to date, 62 exchange-traded funds have been liquidated or delisted, according to data compiled by Bloomberg. That’s more than double the number seen in that same span last year, when just 26 had closed by mid-April. And even more funds are on the chopping block. Last year’s blistering number of fund launches, made the industry ripe for consolidation.
“A number of the shuttered ETFs launched toward the tail end of the post-pandemic market boom and were essentially casualties of bad timing,” said Nate Geraci, president of The ETF Store, an advisory firm. “The list of closures is like a time capsule from that frothy period.”
Crypto-focused funds — along with other once trendy thematic ETFs — were projected to be among the casualties as digital-asset prices come off a harrowing 2022.
At least two of the 62 shuttered funds were focused on digital-assets and crypto-mining operations. They include the Volt Crypto Industry Revolution and Tech ETF (ticker BTCR) and the Viridi Bitcoin Miners ETF (RIGZ). VanEck recently said it has approved the liquidation of its VanEck Digital Assets Mining ETF (DAM).
Meanwhile, the first nonfungible token-focused fund has also ceased trading, along with an ETF centered on trends favored by Generation Z and the AXS De-SPAC ETF (DSPC), which focused on the pandemic super theme of special purpose acquisition companies or SPACs.
The market environment has, of course, drastically changed since the early pandemic days. The Federal Reserve last year embarked on an interest-rate hiking campaign that proved deleterious to stocks, bonds, crypto and other asset classes. Previously glitzy industries have lost their shine in an era of higher rates.
“After weak markets in 2022, many asset managers have reassessed their product lineups,” said Todd Rosenbluth, head of research at ETF data-provider and research consultant VettaFi.
The funds that have shuttered this year had just $17.1 million in assets on average, with the smallest — DSPC — holding just $289,000 at its close, data compiled by Bloomberg show. While the closed funds’ average lifespan was just over six years, the list included the Invesco BLDRS Emerging Markets 50 ADR Index Fund (ADRE), which had been around since 2002, showcasing how the bear market has forced issuers to take a hard look at their existing lineups. The youngest of the bunch — the Newday Sustainable Development Equity ETF (SDGS) — launched in mid-September.
Shrinking Lineups
More closures are still to come as a number of issuers have disclosed that they’ll be culling their ETF suites. Invesco said it will close more than 20 of its funds as part of a broader “refinement” to the asset manager’s offerings. Simplify announced on April 13 that it would liquidate four funds.
Deborah Fuhr, founder of ETFGI, a London-based research firm, is not surprised that the pace of closures has picked up. For one, asset levels — including for ETF managers — have gone down, meaning that “the ability to cover costs is less than it would have been last year for many firms, so many are looking at how can they save costs,” she said.
In addition, a small number — out of the whole ETF universe — hold the biggest pool of assets. About 620 out of 11,000 ETFs globally account for 80% of assets for the entire ETF industry, each with individual assets of $2 billion.
“There’s a lot of small ETFs out there that are not covering their costs,” said Fuhr.
Meanwhile, the pace of launches, though still robust, has slowed from the same period a year ago. There have been 96 debuts through mid-April, compared with 130 in 2022.
“As the ETF industry continues maturing, there simply isn’t as much white space for new products to find success,” Geraci added.
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