Part of the great unwinding.....I love the line herein which says; " investors will have to find a broker dealer who will accept them" Oh MY....all these proxie products....and now those holding them find, that they might never have located the inventory they were supposedly backed with......
Market Slump Places Small ETFs In Danger
Friday February 15, 6:21 pm ET
Jesse Emspak
The market downturn may slow the growth of exchange traded funds and mean the dissolution of some smaller funds, even though they might perform well.
Some 650 ETFs exist now, and about 200 were rolled out in the past two years, according to Paul Mazzilli, director of ETF research at Morgan Stanley. Not all gather assets fast enough to survive long-term, he says.
Lower Limits
Mazzilli puts $75 million as an approximate lower limit for an ETF's long-term viability. Below that, the revenue generated might not be enough to cover costs.
He adds that about 150 ETFs exist with less than $10 million in assets. Most of these have existed only a short time.
Elements Rogers International Commodity Metal ETN (AMEX:RJZ - News) is linked to the Rogers Commodity Index. Metals Total Return is one such ETF. It began trading in October.
It has about $6 million in total assets. The returns have been good year to date, at 13.25%, according to Morningstar. But it is unclear whether the performance will keep bringing new investors.
Meanwhile, Claymore Securities announced it will close down 11 ETFs, which averaged $3 million in assets each. The smallest had about $2 million and the largest $5 million.
The ETFs held 2% of the firm's assets. The last day of trading for them is Tuesday.
The ETFs on the block include Claymore/BIR Leaders 50 (AMEX:BST - News). Another is Claymore/BIR Leaders Mid-Cap Value (AMEX:BMV - News).
Claymore rolled out both in April. Their three-month returns have been -9.29% and -12.29%, respectively. Daily volumes for both stayed in the low tens of thousands of shares since their inception.
Investors can sell their shares until Feb. 20. After that they must find a broker-dealer willing to take the shares.
If an investor keeps his shares after the end of the month, he gets whatever the value is on that date.
Need For Fast Growth
Mazzilli notes most successful ETFs tend to build asset levels quickly.
Claymore BNY/BRIC (AMEX:EEB - News), which tracks an index of Brazil, Russia and China, reached $941 million in 16 months.
Despite the recent slowdown in Brazil and China, the ETF has brought investors an impressive 57.26% the past year.
Mazzilli says while he can see more ETFs closing down, and a slowdown in the number rolled out, financial firms will still keep coming up with new ideas. But not all will hit home runs with investors.
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