Here’s something you don’t see everyday: An ETF is shutting down.
State Street Global Advisors (SSgA) will halt trading on the SPDR O-Strip ETF (OOO) on September 13. Although it is the first U.S. ETF liquidation in over three years (see below), the decision doesn't come as much of a surprise: The O-Strip fund has just $4.9 million in assets, and trades just 1,500 shares a day. Those kinds of numbers are simply not sustainable for a fund that has been on the market for nearly two years. As SSgA looks to re-invigorate its ETF franchise, it makes sense to focus its resources where it sees the potential for growth.
To shutter the fund, SSgA will liquidate the underlying securities between September 16th and 20th, and will return cash to investors on the 20th. The cash payments will be based on underlying net asset value, although that value will reflect the costs of closing down the fund. It will be interesting to watch how the fund trades between now and the 13th; it would not be surprising to see assets leave the fund early.
The liquidation will mark a quiet end to a fund launched with a fair amount of fanfare in September 2004. The O-Strip was always an unusual little ETF, but SSgA once had big plans for it..The fund holds all the Nasdaq-listed securities in the S&P 500 – about 75 stocks in all – and was developed by SSgA in partnership with Standard and Poor’s as a way for traders to easily acquire the Nasdaq-listed securities in the S&P 500.
A trader looking to pull together a portfolio of S&P 500 securities can acquire all the NYSE-listed shares in a single portfolio trade, but to buy the Nasdaq stocks, they have to execute each trade individually. The idea behind the O-Strip was that they could complete the trade in two fell swoops.
Except they never swooped.
Apparently, trading the underlying securities is not that difficult – at least for institutional investors operating in an age of computer-driven trading.
Although certain funds have been closed overseas, the last time an ETF was shuttered in the U.S. was in May 2003, when ETF Advisors closed down its fixed-income ETFs. The so-called FITRs had $80 million in assets.
OOO 2-yr chart: