I’ve been a critic of the trend of launching increasingly narrow-focused ETFs for…[some time]. While it’s nice having a product available that gives you access to such a narrow slice of the market, it feels more like a gimmick than actual investing strategy. Lately, companies have been more willing than before to pull the plug on funds that have received little investor interest. The ETFs that could be destined to [go that way]…are relatively easy to pick out. I have gone down the list of recent narrowly-focused fund launches and found five names that I think could ultimately be liquidated if things don’t change soon.
The comments above and below are excerpts from an article by David Dierking (from etfDailyNews.com) which has been edited ([ ]) and abridged (…) to provide a fast & easy read.
On December 9th, ETF Managers Group announced that it was closing the Restaurant ETF (BITE). The fund launched with a fair amount of interest in October 2015 as the first ETF to focus solely on the restaurant industry. It was thought that the trend of steadily increasing household spending on eating out would result in strong performance for restaurant stocks attracting investor dollars. Investors never became interested in the product though. The fund will shutter later this year with only around $1.5 million in total assets.
…For every PureFunds Cybersecurity ETF (HACK), there are a dozen funds like the Restaurant ETF that never catch on…Even the Cybersecurity ETF, one of the most successful ETF launches lately, has seen its assets under management drop significantly from its peak over a year ago.
The closure of the Restaurant ETF along with other recent niche ETF closures such as the CrowdInvest Wisdom ETF (WIZE), a fund that crowdsourced its investment ideas and closed earlier this year after just five short months, could be sending a signal that companies may be more willing than before to pull the plug on funds that have received little investor interest.
The ETFs that could be destined to experience a similar fate are relatively easy to pick out. They probably have less than $10 million in total assets and are very thinly traded. I went down the list of recent narrowly-focused fund launches and found five names that I think could ultimately be liquidated if things don’t change soon.
1. USCF Restaurant Leaders ETF (MENU)
The fact that the original restaurant ETF just closed due to lack of interest can’t be encouraging for the other one that just launched. This fund is only about a month old so it’s still too early to pass judgment on it. But given what we know now about investor interest in this particular segment of the market, this fund’s long term prospects don’t look good.
2. PureFunds Big Data & Analytics ETF (BDAT)
PureFunds hit a home run with the Cybersecurity ETF but the rest of its lineup is kind of hit and miss. Its Mobile Payments ETF (IPAY) is doing reasonably well with assets of around $50 million but the remainder of its niche ETFs are still tiny. Most are new and still need some time, but the Big Data & Analytics ETF has been around for nearly a year and a half and still has just $2.3 million in assets. PureFunds killed two of its ETFs back in 2014. This one may end up being #3.
3. Etho Climate Leadership U.S. ETF (ETHO)
This fund avoids fossil fuel companies and invests in an index of 350 companies that have the smallest carbon footprint in their industries. It could appeal to socially conscious investors but a company’s carbon footprint doesn’t directly translate to the bottom line. So what you end up with looks pretty much like a generic diversified equity fund. This year-old fund has about $7 million in assets.
4. Sprott Buzz Social Media Insights ETF (BUZ)
The Social Media Insights ETF looks to invest in roughly 75 names that have the greatest bullish sentiment on social media platforms. The fund’s fact sheet says that more than 50 million social media comments, news articles and blog posts are culled each month and run through its analytics model to pull out the most popular names. The fund is only eight months old, but so far it has only $5 million in assets and trades only about 300 shares a day.
5. Global X Guru Activist Index ETF (ACTX)
This fund actually has a reasonable objective. It invests in 50 of the top equity picks of notable activist investors. Investors, however, haven’t bought into the premise as the fund has only netted about $1.5 million in assets. Global X closed another of its Guru ETFs just last year. This one could be headed toward a similar fate.