It was thought that the trend of steadily increasing household spending on eating out would result in strong performance for restaurant stocks attracting investor dollars. Investors never became interested in the product though. The fund will shutter later this year with only around $1.5 million in total assets.
I’ve been a critic of the trend of launching increasingly narrow-focused ETFs for a while. For every PureFunds Cybersecurity ETF (HACK), there are a dozen funds like the Restaurant ETF that never catch on. While it’s nice having a product available that gives you access to such a narrow slice of the market, it feels more like a gimmick than actual investing strategy. Even the Cybersecurity ETF, one of the most successful ETF launches lately, has seen its assets under management drop significantly from its peak over a year ago.
The closure of the Restaurant ETF along with other recent niche ETF closures such as the CrowdInvest Wisdom ETF (WIZE), a fund that crowdsourced its investment ideas and closed earlier this year after just five short months, could be sending a signal that companies may be more willing than before to pull the plug on funds that have received little investor interest.
The ETFs that could be destined to experience a similar fate are relatively easy to pick out. They probably have less than $10 million in total assets and are very thinly traded. I went down the list of recent narrowly-focused fund launches and found five names that I think could ultimately be liquidated if things don’t change soon.
The fact that the original restaurant ETF just closed due to lack of interest can’t be encouraging for the other one that just launched. This fund is only about a month old so it’s still too early to pass judgment on it. But given what we know now about investor interest in this particular segment of the market, this fund’s long term prospects don’t look good.
PureFunds hit a home run with the Cybersecurity ETF but the rest of its lineup is kind of hit and miss. Its Mobile Payments ETF (IPAY) is doing reasonably well with assets of around $50 million but the remainder of its niche ETFs are still tiny. Most are new and still need some time, but the Big Data & Analytics ETF has been around for nearly a year and a half and still has just $2.3 million in assets. PureFunds killed two of its ETFs back in 2014. This one may end up being #3.
This fund avoids fossil fuel companies and invests in an index of 350 companies that have the smallest carbon footprint in their industries. It could appeal to socially conscious investors but a company’s carbon footprint doesn’t directly translate to the bottom line. So what you end up with looks pretty much like a generic diversified equity fund. This year-old fund has about $7 million in assets.
The Social Media Insights ETF looks to invest in roughly 75 names that have the greatest bullish sentiment on social media platforms. The fund’s fact sheet says that more than 50 million social media comments, news articles and blog posts are culled each month and run through its analytics model to pull out the most popular names. The fund is only eight months old, but so far it has only $5 million in assets and trades only about 300 shares a day.
This fund actually has a reasonable objective. It invests in 50 of the top equity picks of notable activist investors. Investors, however, haven’t bought into the premise as the fund has only netted about $1.5 million in assets. Global X closed another of its Guru ETFs just last year. This one could be headed toward a similar fate.
David Dierking is a freelance writer focusing primarily on ETFs, mutual funds, dividend income strategies and retirement planning. He has spent more than 20 years in the financial services industry and his background includes experience in investment management, portfolio analytics and asset/liability management at both BMO Financial Group and Strong Capital Management.
He has written for Seeking Alpha, Motley Fool, ETF Trends and Investopedia and was also included in the panel for ETFReference.com’s “101 ETF Investing Tips from the Experts”. He has a B.A. in Finance from Michigan State University and lives in Wisconsin with his wife and two daughters.