Friday, January 4, 2013

ETP Turnover in 2012

By Tim Husson, PhD and Tim Dulaney, PhD

2012 was a busy year for the exchange-traded product (ETP) market.  As we've noted before, many new funds have been created, and many others have been closed and liquidated.  The analysts at IndexUniverse have been keeping track, and have produced the final year-end tally for 2012.

In all, 178 ETFs or ETNs were launched in 2012.  iShares (BlackRock) was the largest issuer in terms of number of new funds, but the market was highly divided such that 44% of funds were launched by the smallest 26 issuers:
94 ETFs or ETNs were closed in 2012, up from 30 in 2011.  Russell, FocusShares, ETRACS ETNs and Global X Management had the largest number of closings in 2012 with the remainder of the 94 distributed evenly across 9 issuers.  Russell had over a quarter of all ETP closures in 2012 (see WSJ coverage and press release):
We've discussed previously the risks that can arise when ETNs or ETFs close.  Typically, it is the smaller funds that get the ax, presumably because they have failed to attract enough investor assets to reap significant fees.  These may also be the least liquid funds, and therefore may have issues with tracking error and efficient market transactions.

If 2013 is anything like 2012, there will likely be still more turnover in the ETF and ETN markets, and it will be interesting to see how the recent ETP price war will affect different issuers.  As the ETP market matures over time though, we will likely see the number ETPs opened and closed within a year decline as the market becomes saturated with products covering the popular strategies, exposures and assets.  Of course regulatory changes could also make older ETPs obsolete and cause a revolution in the ETP market.  We look forward to seeing what 2013 brings to this highly innovative market.

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