ETF industry shakeout is accelerating

Figures show record number of closures as industry matures and some strategies backfire

ETF industry shakeout is accelerating

The U.S. exchange-traded product industry, which represents the bulk of the world’s AUM in ETFs, has seen more closures than launches so far this year, with closures reaching an all-time high.

Citing figures from FactSet, the Wall Street Journal reported that 188 exchange-traded products have been shut down so far in 2020, the most on record. The closures, which include both notes and funds, have occurred at big and small asset managers alike.

New offerings, meanwhile, have been relatively slow to come. With just 161 products rolled out, 2020 has seen the lowest number of launches since 2013.

The ongoing shake-out is partly down to the maturity of the industry, which many say is at the point of oversaturation. “Some of the larger firms like [BlackRock’s] iShares and Invesco have a broad suite of products. And it’s common for them to prune their lineup based on where the money hasn’t gone into,” Todd Rosenbluth, head of ETF and mutual-fund research at CFRA, told the Journal.

Over the past several years, established asset managers life Invesco and BlackRock have been slimming down their exchange-traded product lineups to get rid of funds that fail to reach a minimum AUM level. That threshold, typically accepted to be US$50 million, has been getting harder and harder for freshman funds to reach, particularly those launched by newcomer asset managers.

Earlier this year, Invesco shuttered over three dozen ETFs as part of a streamlining effort after it purchased the OppenheimerFunds business in 2019, and Guggenheim Investments’ ETF business in 2018. At BlackRock, there have been eight fund closures so far this year, but that has been more than offset by 26 launches, including seven funds geared toward socially responsible investing.

That process has been compounded by the coronavirus pandemic, particularly due to the historic levels of volatility it’s stirred up. Leveraged strategies were hit hard, including those with amplified exposure to broad equity-market indexes. Between February and March, the S&P 500 underwent a peak-to-trough slide of 30%, and has since rebounded more than 50%.

The shock was even worse for some exchange-traded products linked to commodities. In April, oil prices tanked as investors absorbed news of lowered demand for travel and factories, causing contracts for the following month’s delivery to descend below $0 for the first time ever.

“A triple- or double-leveraged oil [fund] was a doomed strategy,” Rosenbluth said. “If you were double long oil, that was a horrible investment.”

FactSet director of ETF research and analytics Elisabeth Kashner also noted that many banks and asset managers, seeking to trim their risk exposure, closed their fair share of funds. She also pointed to challenges for leveraged or geared funds, as they had to wade into swaps markets for the most volatile underlying assets during daily rebalancing.


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