Exchange-traded products kept growing in 2016, both in popularity and in the money investors were willing to commit. But with growth comes growing pains, and the year featured one telling sign of the times: A record number of fund closures.
In all, 128 exchange-traded notes or funds shuttered during the year, a number that easily eclipsed the previous record of 102.
It’s not necessarily a bad sign, though. Industry watchers have been concerned that expansion has come too quickly and a shakeout of some sort probably is due.
“This isn’t a sign of weakness, it’s a sign of health,” Dave Nadig, ETF.com CEO, said in a report on the site. “It’s far better that funds are closed than that they sit around becoming untradeable zombies.”
The jump in closed funds may just be a sign of a maturing industry. After all, the total number of funds actually expanded during the year by a net 112 to 1,960, according to a count by industry tracker XTF. On top of that, total assets jumped to $2.56 trillion, a 20.4 percent increase.
State Street Global Advisors saw the most funds closed at 16, while BlackRock was second with 14 and ProShares was next with 11. BlackRock continues to be the industry leader with $983.1 billion under management, while Vanguard is next with $612.2 billion and State Street is third at $505.1 billion. Together, the big three firms control nearly 82 percent of all ETF assets.
Exchange-traded notes were particularly hard-hit in the purge, with 29 delistings and only 18 launches. ETNs are debt instruments from banks that, like ETFs, also track indexes. Deutsche Bank delisted two of its leveraged oil products this year.
Invest With An Edge keeps track of the industry’s health and added 25 funds to its “ETF Deathwatch” in December, while removing 12. In all, there are 464 exchange-traded products on the list, which includes 373 ETFs and 91 ETNs.