Just Too Many ETFs out There: Claymore to Close 11 Funds that Nobody Wants

Do you think there are just too many ETFs out there?

Apparently, there are. The latest evidence came from Claymore Securities Inc, one of the major issuers of exchange-traded funds (ETFs), which in an announcement last week says it will close 11 of its 37 ETFs on February 20th and liquid assets in these funds on February 28th.

The following is a table of those Claymore ETFs to be closed, together with each fund’s inception data and daily trading volume (volume data from XTF). Except one, all the other10 funds are less than one year old with very thin volume.

Fund name Symbol Inception Daily volume
Claymore/BIR Leaders 50 BST 04/02/07 1,100
Claymore/KLD Sudan Free
Large-Cap Core
KSF 06/25/07 300
Claymore/Robeco Boston
Partners Large-Cap Value
CLV 06/28/07 1,300
Claymore/LGA Green GRN 12/15/06 2,600
Claymore/BIR Leaders
Mid-Cap Value
BMV 04/02/07 1,000
Claymore/Clear Mid-Cap
Growth Index
MCG 04/26/07 1,200
Claymore/BIR Leaders
Small-Cap Core
BES 04/02/07 1,600
Claymore/IndexIQ
Small-Cap Value
SCV 04/26/07 1,700
Claymore/Zacks
Growth & Income Index
CZG 04/02/07 800
Claymore/Clear Global
Vaccine Index
JNR 06/27/07 200
Claymore/Robeco Developed
World Equity
EEW 03/01/07 5,500

A product that nobody wants will be pulled off the shelf and that’s the same for a ETF that nobody trades.

In 2007, the total number of ETF offerings almost doubled, growing from 359 in 2006 to 613. However, many new, exotic ETFs failed to attract investors attention. If you take a look at Morningstar’s ETF page, you will be surprised to see many ETFs are barely traded at all. The closure of those Claymore funds reminds us that when researching which ETF to invest, we should also pay attention to the fund’s trading volume. After all, we don’t want to be in a situation that we are forced to sell our positions.

As ETFs gaining popularity among investors, I wonder whether the ETF industry has reached a point that they roll out new products just for the sake of rolling out new products to collect more fees from investors. Like John Bogle, founder of Vanguard, previously described in his book The Little Book of Common Sense Investing,

ETFs are clearly a dream come true for entrepreneurs, stock brokers, and fund manager.

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12 Responses to “Just Too Many ETFs out There: Claymore to Close 11 Funds that Nobody Wants”

  1. Jeremy |  Feb 05, 2008 at 1:38 pm

    I do think we’re getting flooded with too many ETFs, and it is eventually going to do investors a disservice. It is almost as if they will create an index out of anything just for the sake of doing it. I’m surprised we don’t have an ETF that tracks mid-cap value funds of companies that only start with the letter M.

    It is great that investors have access to a wide range of investments with low fees, but you can have too much of a good thing. Choice is good, but too many choices can cause paralysis. Even worse is that some of these very specialized ETFs end up being no less diversified than an individual stock in the grand scheme of things. Investors who maybe have heard that ETFs are a great low-cost way to obtain diversification might be putting all of their money in a few ETFs that focus on just a few specific niches.

    And of course, if we begin to see more of these funds closing like this, investors may very well get screwed as their assets are liquidated at a potential loss and be faced with finding alternative places to put their money, and incurring another trade commission to do so.

  2. The Dividend Guy |  Feb 05, 2008 at 5:27 pm

    One of the biggest benefit of index funds is the simplicity. The index fund companies have done a disservice to investors by creating all these niche funds. Keep things simple and invest in broad asset classes.
    Just my two cents.

  3. Jonathan |  Feb 05, 2008 at 9:21 pm

    This is actually kind of funny, Global Vaccine ETF? I wonder what happens if you hold these ETFs – do you just get cashed out at NAV one day?

  4. Jeremy |  Feb 05, 2008 at 9:42 pm

    Jonathan, I’m guessing by what was said in the post that people who still hold assets in the funds as of Feb. 28th will just have their positions liquidated. This is quite a raw deal if people just recently invested in these funds and will have to take a loss thanks to the market lately.

    Kind of reminds me of the whole mortgage mess. For decades we had just simple straightforward mortgages, and things chugged along just fine. Then along come all sorts of exotic loans to entice more people into the market, and look what happened. Same thing with a lot of the ETFs being created. They have abandoned their roots, attracted more investors, and now people are going to get screwed.

  5. CiaranFromChance |  Feb 05, 2008 at 11:18 pm

    I think we’ll be seeing more and more of this. Going forward new ETF’s will only survive if they are covering new or emerging markets and are new to the marketplace.

    ETF’s track indexes (for the most part) and the first so called ‘pioneers’ to the marketplace stake their claim, much like the GoldRush 150 years ago. That will be Vanguard, Barclays, StateStreet, etc.

    Actively managed funds, hedge funds will always come out with new offerings and some will survive because it’s about absolute performance, ETF’s are all about relative performance, its a commoditized business, that comes down cost for the most part.

    If you like cola and launch a new brand and try and compete against Coke or Pepsi, how can you? No chance. You can only compete if you bring something new and exciting to the marketplace, a Vitamin Water.

    More of this to come for sure…

  6. Sun |  Feb 05, 2008 at 11:54 pm

    It seems that ETF is now a lucrative business and everybody wants a piece of it. Since ETFs until now all track some kind of indices, financial firms so far have been very creative in creating new indices so that new ETFs can be launched. Think about it, if there is a Vaccine index, why can’t there be a Wine index or Beer index? More indices are going to be introduced and more ETFs will follow. And sure more funds will not survive.

    I just heard today that actively managed ETFs will soon be on the table. I wonder how much the active ETF will cost.