BlackRock’s Thesis
Between 2013 and 2015, liquidations and delistings across the U.S. rose to 200, up almost 50 percent from the previous three years, data compiled by Bloomberg show. This year, fund managers have closed 33 funds, with a further 31 slated to get chopped this month, according to announcements from State Street Corp., ProShares and BlackRock.
“We regularly review our ETF line-up to ensure the funds are meeting the current and future needs of our clients,” BlackRock spokesman Paul Young said.
BlackRock has reviewed its ETF business at least once a year since 2014, closing funds in March and October of that year, and again last August. The latest batch traded for the last time on Aug. 23. To put that in perspective, the money manager has started 93 ETFs since 2013, more than double the number it has axed, data compiled by Bloomberg show.
Why Funds Flop
ETFs fail for as many reasons as they succeed. First, strategy is key -- if investors don’t buy the rationale for a fund that bets on high-yield debt using credit-default swaps or one that seeks income via put options, it’s doomed.
Second, don’t be late, because stepping onto a crowded field dominated by major players is a deadly strategy. The fund company Direxion closed a leveraged euro-hedged ETF after less than a year when it failed to lure investors from the more than 40 other currency-proof funds already out there.
And third, a fund’s methodology may become dated.
Invesco PowerShares Capital Management, for example, shut down its China A-Share Portfolio ETF in March after concluding that the market had evolved beyond its strategy. The product, which never topped $24 million in assets, offered investors exposure to China using index futures; but funds that use the government’s quota to directly buy stocks ultimately garnered more interest.
“We had a bit of an outdated technology,” said Dan Draper, head of Invesco PowerShares, during an interview at Bloomberg’s headquarters. “We try not to, but if we need to close, we will certainly do that.”