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November 17, 2023

Friday Facts: The ETF Death List

by Detlef Glow.

To be honest, this headline is kind of clickbait since there is no ETF death list in this article. After I read the very good, researched article “Can ETF issuers keep the lights on?” by Jamie Gordon, who claimed that “only 50% of UCITS ETFs are currently profitable” in the November issue of ETF Insider, I realized that I haven’t looked at ETFs with low assets under management in quite some time.

As of October 31, 2023, there were 1,937 ETFs (primary share classes) registered for sales in Europe. 1,411 of these ETFs were older than 36 months. Out of these ETFs, 345 never held 100 million euro or more in assets under management (AUM), 191 ETFs did never held AUM of 50 million euro or more, and 27 did never held more than 10 million euro in assets under management.

Now, one could say that it is quite a simple task to create an ETF death list from these results since at least those funds which are older than 36 months and never reached 10 million euro in AUM might be clear candidates for such a list. But the reality is different from this assumption since literally all ETFs with AUM below 10 million euro belong to issuers which are operating as one-stop shops for their customers. Therefore, it is rather unlikely that they will close an ETF which has been launched to complete a factor/sector/regional product range, even though the respective fund might not have been profitable in a long time. The same is true for ETFs which have been launched for strategic reasons. These ETFs normally cover exposure to a non-core market and have been launched by a local promoter which might help position itself as a local market leader. As for this, it is not surprising that the oldest funds on this list have been launched in 2004 and 2006, respectively.

The same theme stays somewhat in place when the list gets extended to the ETFs which never held 50 million euro or more in AUM. That said, it is remarkable that there are a lot of sector funds on this list which could lead to the closure of a complete product range if the promoter decides that the respective ETFs will no longer be subsidized. Additionally, there also some theme-based products on this list that could face a higher risk of being closed if investor interest and assets are directed to other themes. It is noteworthy that there are also a number of Lyxor/Amundi ETFs on this list that could be merged with other ETFs with the same or a similar investment objective. It is clear that Amundi ETF will clean up its product offering after the merger with Lyxor. This means all ETFs will be relabeled and products with the same or a very similar investment objective will be closed to increase the profitability of the overall product offering.

This pattern generally repeats itself when the AUM ceiling is lifted to 100 million euro. Nevertheless, it is somewhat surprising to see large parts of product ranges from single promoters within this bucket because this means that these promoters are in trouble when it comes to overall profitability. This means that Jamie’s headline question is somewhat on the spot, even as the European ETF industry appears in good shape when one is analyzing the general trends regarding fund flows and AUM.

 

This article is for information purposes only and does not constitute any investment advice.

The views expressed are the views of the author, not necessarily those of Refinitiv Lipper or LSEG.

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