With the explosive growth in the number of exchange-traded funds (ETFs) being created, the number that have failed is rising, too.
“For the past year or more the list has been accelerating more rapidly,” said Ron Rowland, of Capital Cities Asset Management, who created the “ETF Deathwatch” blog four years ago.
“I started this because with all the new ETFs coming to market, I was having trouble keeping up with all of them,” Rowland said. “There were too many coming to market too fast. Not all of them would survive.”
Not all will die, and in fact, most don’t. While there are 1,486 listed ETFs (explain this), only 229 have been delisted since the first one was delisted in 2002.
But in his most recent blog, which he updates monthly, Rowland said that the number of names on Deathwatch is now growing faster than the industry itself, with 24 ETFs joining the list last month, while 10 were created. His list now totals 377 ETFs.
To make the list, a fund must fit his criteria, which includes assets under management after six months and average trading volume. (Too little of either and a fund can have trouble making money.)
Among those added to Deathwatch this month: The AdvisorShares Accuvest Global Opportunities fund, the iShares Emerging Markets Latin America Fund, and the Vanguard S&P Small-Cap 600 Growth ETF.
And get this: Half of all actively managed ETFs are on the list. Actively managed ETFs, whose managers make the investment calls, have represented a boomlet of sorts among ETFs. There are now 60 actively managed funds, up from 1 in 2008. So far, seven (or 11.7 percent) have failed. The most recent was the Advisor Shares Dent Tactical ETF, which was shut last week.
By contrast, 13 percent of all passive ETFs (and electronically traded notes) have failed.
This note: In passing conversation Rowland notes that he has seen a number of ETFs from major fund companies, like Pimco, that are rolled out with no announcement and operate under the radar with little in the way of assets — making them eligible for Deathwatch.
“My guess,” he said, “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. But at least they’ll be able to say they have a track record.”
Makes strategic sense. Memo to me: Great story, write it.
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