Of the 102 ETP closures in 2012, 78 were on ETF Deathwatch when their closures were announced.
You may have seen articles trying to persuade you that low volume ETFs are no reason for concern. After all, the creation/redemption mechanism provides for much more liquidity than the volume would imply. That is true to a point, but if an ETF is only trading 1,000 shares a day, it will take at least 50 days of trading to generate a 50,000-share block for an in-kind exchange.
Today, the iPath Short Enhanced MSCI EAFE ETN (MFSA) is quoted with a bid of $34.71 and an ask price of $104.81. If you are willing to accept those prices, then you need to be aware they are only valid for the first 100 shares. The next 100 shares have a bid/ask spread of $33.67/$107.95. Additionally, MFSA’s last trade occurred in October. It would take all of its trades back to June of 2011 to create a 50,000-share block. Now ask yourself how much more comfortable you are about trying to sell 1,500 shares knowing that its liquidity can be “improved” via the creation/redemption process.
Five ETPs had zero volume for the entire month of December, and 92 had zero volume on the last day of the month. It doesn’t take much to escape from Deathwatch, averaging $100,000 in daily trading activity will usually do it. That’s just a measly $8,000 transaction every half hour or so while the market is open. Yet, there are 375 products on the list this month, and another 54 were granted exclusion because they are less than six months old.
The average product on ETF Deathwatch is nearly 33 months old and has $6.4 million in assets. Currently, 45 members have been in existence for more than five years. The quantity of funds with less than $2 million in assets stands at 53.
The 15 ETPs added to ETF Deathwatch for January:
- ETRACS Next Generation Internet ETN (EIPO)
- Global X Brazil Mid Cap ETF (BRAZ)
- Global X Top Guru Holdings Index ETF (GURU)
- Huntington EcoLogical Strategy ETF (HECO)
- iPath Inverse S&P500 VIX S-T Futures ETN (XXV)
- IQ Australia Small Cap ETF (KROO)
- iShares B-Ca Rated Corporate Bond (QLTC)
- PowerShares DB Agriculture Double Short ETN (AGA)
- PowerShares DB Crude Oil Long ETN (OLO)
- ProShares Short Euro (EUFX)
- ProShares Ultra Euro (ULE)
- SPDR BofA Merrill Lynch Emerging Markets Corporate Bond (EMCD)
- STREAM S&P Dynamic Roll Global Commodities (SNPC)
- Sustainable North American Oil Sands ETF (SNDS)
- United States Metals Index Fund (USMI)
The 6 ETPs removed from ETF Deathwatch due to improved health:
- First Trust Europe AlphaDEX Fund (FEP)
- Market Vectors China A-Shares ETF (PEK)
- Market Vectors Investment Grade Floating Rate (FLTR)
- Morgan Stanley Cushing MLP High Income ETN (MLPY)
- PIMCO 3-7 Year U.S. Treasury Index ETF (FIVZ)
- VelocityShares 3x Inverse Gold ETN (DGLD)
The 8 ETPs removed from ETF Deathwatch due to death and delisting:
- WisdomTree Dreyfus Japan Yen (JYF)
- WisdomTree Dreyfus S. African Rand (SZR)
- WisdomTree LargeCap Growth (ROI)
- IQ Emerging Markets Mid Cap ETF (EMER)
- VelocityShares 2x Inverse Palladium ETN (IPAL)
- VelocityShares 2x Long Palladium ETN (LPAL)
- VelocityShares 2x Inverse Copper ETN (SCPR)
- VelocityShares 2x Long Copper ETN (LCPR)
ETF Deathwatch Criteria (objective criteria used to generate list)
ETF Deathwatch Archives (past monthly issues)
Ron Rowland is the founder of Invest With An Edge and serves as the Executive Editor. He is also editor of AllStarInvestor.com and Chief Investment Officer of Capital Cities Asset Management (www.ccam.com). Quoted widely in the financial media, Ron is the industry go-to guy for sector rotation insight and investment strategies using ETFs and mutual funds.