Ron Rowland: Sixty-seven exchange traded products (“ETPs”) saw their last day of listed trading in 2013. This is the second highest annual death toll for the relatively young industry, surpassed only by the 102 closures of the prior year. The departed are a mixture of 50 ETFs and 17 ETNs, and the lifetime count now stands at 380 (324 ETFs and 56 ETNs).
Closures affected 16 different brands, with FactorShares, KEYnotes, and STREAM becoming brands that are no longer with us. We welcomed the closure of FactorShares, as it removed an industry blight due to these ETFs having ludicrous expense ratios as high as 33%. JPMorgan closed out its only KEYnotes ETN in October along with two other ETNs under the JPMorgan brand. However, it did not liquidate the KEYnotes product at the time. JPMorgan is now down to a single ETP, the JPMorgan Alerian MLP Index ETN (AMJ). AMJ has ceased creating new shares though, rendering it a broken product subject to price premiums.
BNP Paribas entered the U.S. ETF market in 2012 with the introduction of the STREAM S&P Dynamic Roll Global Commodities ETF (BNPC). BNP Paribas committed ETF sponsor suicide in April of 2013 by closing and delisting the fund without any plan to liquidate the assets and return the money to shareholders. Eventually, BNP Paribas came around, but it took 199 days to render payments, providing an excellent example of why investors should sell shares prior to delisting and avoid the liquidation process. That may seem extreme, but Credit Suisse finally got around to liquidating three ETNs in 2013 that it delisted in 2009, taking 1,422 days for shareholders to get their money.
Most of 2013’s closures had become Zombie ETFs, and 57 of the 67 (85%) were on ETF Deathwatch at the time of their closure announcements. Typically, closures are the result of failing to attract enough assets, and in turn, not generating enough revenue for the sponsor. There were some exceptions, like the triggering of an early termination event to prevent the price from going to zero for two ETNs. Three bond ETFs had graceful closings due to reaching their planned maturity and liquidation dates. Guggenheim had the most closures of funds not on ETF Deathwatch, suggesting the firm has been aggressive in removing unprofitable products from its lineup.