Eric Dutram: WisdomTree, the New York-based ETF issuer best known for its lineup of dividend-weighted funds, appears to be succumbing to the recent trend of closures in the industry. The company recently announced that it would be shuttering three funds, bringing its total offering down to 46.
The three products that the firm will be closing include the South African Rand Fund (NYSEARCA:SZR), the Dreyfus Japanese Yen Fund (NYSEARCA:JYF), and the LargeCap Growth Fund (NYSEARCA:ROI). All three combine to have less than $25 million in assets and account for less than 0.2% of the company’s total AUM.
Given this, and since all three have had a substantial amount of time to garner assets (all three debuted at various points in 2008) WisdomTree felt that it would be best to shut the doors on these unpopular products in order to focus its energies elsewhere. After all, all three were probably money losers for the company, and none showed any indication of surging investor interest in the near term (Read State Street Debuts Unique Momentum and Value ETFs).
According to a PDF on the company’s site, shares will stop trading on NYSE Arca after the close of business on Monday, December 3, 2012. If investors do not sell by that date, shares will automatically be redeemed one week later and investors will receive a cash payment of their NAV at the close of business.
While this is somewhat disappointing that we are again seeing some more closures, investors should note that there are other options out there to gain similar exposure for two of the three.
However, in the case of SZR, this marks the end of ETF exposure to the South African rand as no other fund currently on the market is focused on this currency. Yet for JYF and ROI, there are at least a few other options out there, some of which we have highlighted below:
In the case of JYF, there is one very popular Japanese yen ETF which offers substantially similar exposure. However, the fund, the CurrencyShares Japanese Yen Trust (NYSEARCA:FXY), has assets over $125 million and volume over 200,000 shares a day, giving investors a very liquid and popular choice beyond the soon-to-be closed WisdomTree currency product (read Bet Against the Dollar With These Three Currency ETFs).
Meanwhile, for ROI and its large cap growth focus, there are a number of other options out there that can provide similar exposure. Among the most popular are IWF, VUG, and IVW, all of which have over $7 billion in AUM and volume exceeding more than 100,000 shares a day.
Any of these three look to provide investors with a growth tilt on large cap stocks, acting as a nice substitute for those who were in, or were considering, ROI for their portfolio (see Active Large Cap ETFs: The Best of Both Worlds?).
So really the only product that is a true loss for the ETF industry is SZR, but currency ETFs have had a spotty track record to say the least. If anything, WisdomTree’s closures underscores that currency-based funds are a hard sell among many investors who seem as though they enjoy obtaining their exposure to these instruments directly in the forex market instead.
Lastly, it also shows that there can only be so many ETFs in any particular niche, at least at this point in the industry. This is especially true in the large cap growth space where competition is particularly fierce with a number of heavily entrenched funds with huge AUM bases (read the Guide to the Most Popular ETFs).
Still, the closures shouldn’t be viewed as too big of a deal either for WisdomTree or the broader ETF space. Sometimes a product just doesn’t catch on and that appears to have been the case with SZR, JYF and ROI over the past few years.
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