Cumulative assets in the U.S. exchange-traded fund industry zoomed 90% during a nearly five-year period through last month and now hover around the $4 trillion mark, but this amazing growth story has a downside in that 24% of ETFs closed during that period and another 7% are rapidly declining, according to statistics from investment research firm CFRA.

CFRA last month bolstered its in-house research chops when it acquired data-and-analytics firm First Bridge Data LLC, and CFRA today held a media call that utilized First Bridge’s research muscle to provide an in-depth look at the winners and losers in the ETF space during the period from December 2014 through August 2019.

Despite this article’s headline that draws attention to the losers, let’s first take a look at the winners. As CFRA pointed out, the winner's circle is a very top-heavy group with the top 100 ETFs accounting for 83% of the total asset growth during the measurement period. BlackRock’s iShares unit and Vanguard held 69% of the top 100 ETFs.

Drilling down deeper, CFRA says 20 ETFs, or just 1.2% of the 1,662 U.S.-listed ETFs as of year-end 2014, accounted for 44% of cumulative asset growth through August 2019. And 18 of those top 20 funds belong to either iShares or Vanguard. That list consists of 17 equity funds, two fixed-income products and the SPDR Gold Shares (GLD). Nearly all of these funds are low-cost products intended as core allocations in investment portfolios. 

So yes, fees do matter. To illustrate that point, the industry’s largest product, the SPDR S&P 500 ETF (SPY), grew only 4.5% on an annualized basis during the measurement period (its net outflows clipped its growth by offsetting the market appreciation of its underlying stock positions). In contrast, two other funds that track the S&P 500 Index and which currently are the second and third largest ETFs—the iShares Core S&P 500 ETF (IVV) and Vanguard S&P 500 ETF (VOO)—saw average annual growth rates of 23% and 38%, respectively.

In short, SPY, which charges an expense ratio of 0.09% and has a large base of institutional investors who use the product as a trading tool, has been bleeding assets to lower-cost IVV (0.04%) and VOO (0.03%), which are popular core holdings in long-term investment portfolios.

Todd Rosenbluth, CFRA’s head of ETF and mutual fund research, stated his belief that investors shouldn’t invest by price alone and instead should look at the underlying holdings and do a comparative analysis. But he noted these three products might be an exception to that rule.

“These three all track the S&P 500 Index, and there’s little reason to not look at total cost—whether you’re looking at expense ratio or trading cost—because they are identical in construct and exposure,” he said. “It’s not surprising we’ve seen SPY lose market share.”

It’s worth noting that while BlackRock/iShares and Vanguard have dominated the hit parade, other ETF sponsors with a sizable number products that CFRA defines as rapid growers include First Trust, State Street Global Advisors, Direxion and Invesco.

Still, Vanguard seems to have the most momentum. CFRA notes that 98% of its ETFs grew assets in the measurement period, and 70% experienced rapid growth. CFRA says Vanguard’s big selling point is that financial advisors and retail investors like its low-cost core ETFs for asset allocation purposes.

Furthermore, Vanguard didn’t have any fund closures during the measurement period (neither did First Trust), while BlackRock had a closure rate of 13%.

And that brings us to the losers. According to the First Bridge ETF database, 399 exchange-traded products closed between December 2014 and last month. That’s 24% of the total ETP universe that existed as of late 2014. A good chunk of those closures (34%) were exchange-traded notes, which are unsecured debt instruments issued and underwritten by banks or other large financial institutions. 

“A lot of exchange-traded notes are very specialized in terms of their investment objective and maybe didn’t meet investors’ requirements,” said Aniket Ullal, CFRA’s vice president of ETF data and analytics.

He noted the general consensus for a sustainable asset threshold for an ETF is between $50 million and $100 million, with the latter figure typically used as the measuring stick.

“We found that 89% of the ETFs that closed never reached $100 million over their entire life,” Ullal said. He added that ETFs with highly specialized international market exposures were another category with a sizable number of closures.

While ETF closures paint a negative image, they actually help cull the herd and eliminate products that investors evidently don’t need or want. In a sense, CFRA points out, it’s a form of pruning that can make for a healthier ETF industry.