Content provided by Grant Engelbart, CLS Research/Portfolio Analyst

In the ETF world, there is a constant barrage of new ETFs being issued and companies filing for new ETFs with the SEC.  What’s often ignored is there are also a number of ETFs that close down each year.  There are a number of reasons an ETF could close down, but usually it’s due to a lack of assets and/or poor performance.  As you will see, some of these ETFs just happened to be launched at the worst possible time… literally ever.  The graph below shows ETF issuances per year in green, closures in red, and the total number of ETFs in blue.  As you can see, 2012 was a deadly year for ETFs, and so far this year, we are off to a similar start, with 42 ETF closures thus far.

Let’s take a look at some of these ETFs that failed and when they were launched, and I think some things will be quite obvious as to why they are no longer trading.  For instance, MACROshares Oil Down Tradeable Shares (DCR) was launched in late 2006.  This was an inverse oil ETF, launched right before the massive run-up in oil in 2007. Needless to say, as oil skyrocketed, the ETF price was driven all the way to a penny, a return of -99.99 percent.  Ironically, not even 2 weeks after DCR closed shop in 2008, oil began to free fall, down nearly 80 percent.  That’s just plain old bad luck! Here are some others I’d like to highlight from a Morningstar list:

The first is FAA, a fund near and dear to my heart.  This was a holding in Select Appreciation up until FAA’s closure.  Can you believe they closed a fund with 1) a great ticker symbol and 2) such a great return!  Speaking of great tickers, Global X has some good ideas, and awesome tickers, but just couldn’t quite gain the assets to stay afloat.  On the opposite end of the spectrum – “HealthShares Emerging Cancer” – in my opinion, what a horrible name!  Needless to say, all HealthShares ETFs have closed down.  I mean, who would have thought that HealthShares Ophthalmology wouldn’t have made it?  Back to horrible timing, MACROshares launched their housing bear fund at the end of 2009, in fact, they nearly timed the housing bottom perfectly.  No comment necessary on the Bear Stearns fund…

Now just because there have been a decent amount of ETF closures lately doesn’t mean the ETF industry is slowing down. There have been some amazing new products lately, although it almost seems like some of these ETF providers will launch anything just to see what sticks.  The second ETF listed above, “OOK ETF”, is the Oklahoma Exchange Traded Fund (seriously).  I am guessing they didn’t have any aspirations for OOK to be the next SPY.  Just earlier this month, LocalShares launched the Nashville Area ETF (NASH).  Now I’m sure Nashville is a great city, and I don’t want to make any brash predictions, but come on…

1718-CLS-08/22/2013