Investors in exchange-traded funds are learning that you’d rather be in “what sticks” than what falls by the wayside.
Invesco PowerShares Capital Management announced last week that it would close 19 ETFs on May 18, the single biggest mass killing of exchange-traded funds in the history of the business and the continuation of a small trend that started in 2008 involving the liquidation of tiny funds that can’t attract enough market share.
“After carefully evaluating numerous factors including shareholder considerations, length of time on the market, asset levels and the potential for future growth, we proposed closing certain portfolios that have not gained sufficient acceptance with investors,” Bruce Bond, president and chief executive of Invesco PowerShares, said in a statement. “We remain fully committed to the ETF industry and expect to offer new, exciting products in the months ahead.”
And therein lies part of the problem. The exchange-traded fund business is in the rapid-growth phase where every idea, no matter how scatterbrained, gets a tryout. Fund companies are so eager for market share that they’re throwing every concept at the wall to see what sticks.
In the PowerShares case, the funds that have fallen are a rogue’s gallery of the uninspired and unloved. While the 19 funds represent nearly 15 percent of the PowerShares lineup, their $122 million amounted to less than 0.5 percent of the company’s assets under management. Among the motley crew are PowerShares Dynamic Aggressive Growth, Dynamic Hardware & Consumer Electronics, FTSE RAFI Asia Pacific ex-Japan Small-Mid Cap, High Growth Rate Dividend Achievers and sector funds covering everything from utilities, telecommunications and technology, international real estate, healthcare, consumer goods and more.
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