On one hand, the exchange-traded fund (ETF) industry continues to expand at a record pace (the total number of ETFs at the end of 2008 grew to 747, up 118 from 2007); on the other hand, funds that get no love from investors are being eliminated. Last Friday, PowerShares, one of the major players in the ETF world, announced that it will shut down 19 funds. Even though the number of funds to be closed is roughly 12% of PowerShares’ total 154 ETF offers, the assets in those funds represent less than 1% of the PowerShares’ total assets, which is exactly what the problem is. According to Morningstar data, of those 19 ETFs listed below, at most only a few thousands shares changed hand each day for some while most having trading volumes in the hundreds. This is also the case when Claymore Securities closed 11 ETFs last year.
PowerShares High Growth Rate Dividend Achievers Portfolio (PHJ)
PowerShares International Listed Private Equity Portfolio (PFP)
Since most ETFs are still taking the passive approach, an index has to be created first before an ETF can be launched. However, there are just so many sectors and some countries/regions, it’s just unrealistic to expect every new ETF to become attractive to investors. In fact, nearly half of the ETFs on Morningstar’s complete ETF list don’t get more than a few thousands of shares traded each day. I doubt how many of them at the bottom of the list probably will survive.
I am gald that three PowerShares ETFs I own, PowerShares Golden Dragon Halter USX China (PGJ), PowerShares Water Resources (PHO), and PowerShares Intl Dividend Achievers (PID), are not included in the list, though they aren’t that popular.
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