By Michael Wursthorn
Asset managers have closed more exchange-traded products than
they have launched this year, a sign of how market gyrations have
accelerated an industry shakeout.
So far this year, 188 exchange-traded products, including funds
and notes, have been shut down, the most on record, according to
FactSet. The closures occurred at big and small asset managers
alike, including BlackRock Inc., which manages the popular suite of
iShares ETFs; JPMorgan Chase & Co.; Invesco Ltd.; ProShares and
Direxion.
Meanwhile, launches have been sparse, with just 161 new
offerings coming to market, the lowest number since 2013.
Two factors appear to be driving the shakeout: an oversaturated
industry and the unprecedented volatility that has rocked markets
this year.
"Some of the larger firms like [BlackRock's] iShares and Invesco
have a broad suite of products. And it's common for them to prune
their lineup based on where the money hasn't gone into," said Todd
Rosenbluth, head of ETF and mutual-fund research at CFRA. "Some
leveraged and inverse exchange-traded products have also been
volatile."
Asset managers, including Invesco and BlackRock, have been
trimming their exchange-traded product lineups in recent years,
dumping funds that fail to attract enough assets to support
themselves. That threshold is typically at least $50 million.
Invesco, for example, closed more than three dozen ETFs earlier
this year as part of a streamlining following the purchases of
OppenheimerFunds in May 2019 and Guggenheim Investments' ETF
business in 2018.
BlackRock closed eight funds so far this year but also launched
26 new products, including seven funds focused on socially
responsible investing.
"We are continually evaluating our lineup of ETFs to address the
needs of our clients," a BlackRock spokeswoman said.
Since their 1992 introduction, ETFs have evolved from simple
funds that offer exposure to all the stocks in the S&P 500 into
more complex strategies that focus on themes or bundle stocks,
bonds and other assets. There are about 2,000 exchange-traded
products listed in the U.S., and the industry has grown to $4
trillion.
Asset managers have also been contending with a historic level
of volatility brought on by the coronavirus pandemic. It has
wreaked havoc on some exchange-traded notes, particularly those
that use leverage to amplify the moves of the indexes they follow.
The S&P 500 slid more than 30% from its February peak to its
March low, only to rebound more than 50% since then.
The blowback was even worse for some exchange-traded products
linked to commodity prices. Oil prices collapsed in April, as
investors factored in lowered demand for travel and factories,
briefly pushing the contract for the following month's delivery
below $0 for the first time ever.
ETNs don't look or trade much differently than mutual funds or
exchange-traded funds. However, unlike ETFs, ETNs are debt
instruments and don't own the assets they track. And the products
can be shut down if their value falls below a certain level.
Of the 188 closures, 30% were ETNs, according to FactSet.
Another 38% of those were leveraged ETNs.
"A triple- or double-leveraged oil [fund] was a doomed
strategy," Mr. Rosenbluth said. "If you were double long oil, that
was a horrible investment."
Elisabeth Kashner, a director of ETF research and analytics at
FactSet, added that many banks and asset managers decided to pare
back their risk exposure by closing funds. Leveraged or geared
funds, which must rebalance daily, also faced challenges in the
swaps markets for the most volatile underlying assets, she
added.
The ProShares UltraPro 3x Crude Oil ETF, for example, amplified
the moves of the Bloomberg WTI Crude Oil Subindex by three times,
using leverage. A 1% move up or down in the index equated to a 3%
move for the product, which proved disastrous for some
investors.
The fund last traded at 22 cents a share by the time it closed
in March, down sharply from just over $21 a share in January.
ProShares didn't respond to a request for comment through a
spokesman.
Credit Suisse also closed a number of exchange-traded products
this year, including several leveraged ETNs linked to natural gas,
gold and silver.
The bank said in a June statement announcing the closures that
the move was to "better align its product suite with its broader
strategic growth plans."
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
August 25, 2020 05:44 ET (09:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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