Grail Advisors LLC and Claymore Securities Inc. are shutting down exchange-traded funds. Analysts, however, say this isn't the beginning of a trend that should worry advisers.
“If anything, more ETFs should close,” said Matt Hougan, publisher of IndexUniverse.com. “There are a lot of zombie products where investors could get hurt.”
On Tuesday, Grail will close two of its seven exchange-traded funds: the Grail RP Financials Ticker:(RFF) and Grail RP Technology Ticker:(RPQ). The funds, which were launched in September 2009, were managed by RiverPark Capital and had $2.5 million in assets each, according to the firm.
“We weren't seeing the traction that we wanted to,” said William M. Thomas, chief executive of Grail.
In October, Claymore plans to close four ETFs: the Claymore/Zacks Dividend Rotation ETF Ticker:(IRO); the Claymore/Zacks Country Rotation ETF Ticker:(CRO); the Claymore/Beacon Global Exchanges, Brokers & Asset Managers Index ETF Ticker:(EXB) and the Claymore/Robb Report Global Luxury Index ETF Ticker:(ROB).
The Global Luxury Index and Dividend Rotation ETFs are the largest of the four funds. Global Luxury has $16.2 million in assets; Dividend Rotation has $12.5 million
Claymore decided to mothball the ETFs, in part, because the funds haven't attracted enough investor interest. William Belden, managing director at Claymore, noted that management at the firm had serious doubts about the funds' long-term viability.
Guggenheim Partners LLC bought Claymore last year. As part of the acquisition, the firm is focusing more on core, rather than just niche, strategies, Mr. Belden said. “When you over rely on thematic strategies, you are hoping to be in the right place at the right time,” he said.
“Claymore is a firm that with the acquisition is looking to establish a new direction for itself,” said Scott Burns, an analyst at Morningstar Inc. “And the flip side to the closure is that they are launching some really broad index products.”
In general advisers would be wise to avoid ETFs with a small amount of assets and low trading volumes, experts said. “Anything below $10 million in assets or that trades fewer than 5,000 shares a day are in danger,” Mr. Hougan said.
There's no shortage of such funds. According to IndexUniverse. 213 exchange-traded funds currently have less than $10 million in assets under management. Over the past month, 73 ETFs averaged less than 1,000 shares traded per day.
