The exchange-traded product [ETP] business is flourishing. For investors, there's never been a better time to utilize these flexible instruments. There are new ETFs and ETNs introduced frequently, coming from creative companies addressing all aspects of the investment universe. But some funds are having a hard time attracting assets, and they are sometimes short-lived, often only given a small window of opportunity to succeed before they get shut down. Let's take a look at a few appealing funds that haven't exactly set the world on fire.
ETRACS 2x S&P Dividend ETN
ETP manufacturers have a daunting task ahead of them when launching a new fund. If the company isn't a household name with a big marketing budget, attracting investor dollars can be very difficult. And sometimes even a big name and a big budget don't help.
Take the ETRACS Monthly Pay 2xleveraged S&P Dividend ETN (SDYL), for example. ETRACS are products of UBS, which is a big company with a big marketing budget. According to the company's website, SDYL provides:
monthly compounded 2x leveraged exposure to the S&P High Yield Dividend Aristocrats Index, less fees, making it the only exchange-traded product with leveraged exposure to this index.
So given the stated leverage, it's a bit riskier than other S&P-indexed funds. But since it's benchmarked to the Dividend Aristocrats Index, it also provides a higher yield (5%) than the S&P 500. You'd think there'd be a sizable percentage of the investment population out there looking for a fund like this. But in the 14 months since it launched, it's only attracted $16.5 million in assets and has averaged only 14,000 shares traded per day for the past 90 days.
This could be worrisome for shareholders, because it's doubtful that SDYL is turning a profit for UBS. In other words, a shuttering could be imminent.
Emerging Markets, Retreating Funds
Then there's the iShares Asia/Pacific Dividend ETF (DVYA). This fund has been around since February 2012 and is designed to generate income by investing in Asia/Pacific dividend-focused stocks - countries like Australia, Singapore, Hong Kong, Japan and New Zealand. Its current dividend yield is just over 5% and the fund has reasonable expenses of 0.49%. And that's where I start scratching my head. The fund has only accumulated $40 million in assets under management. A simple calculation ($40 million x 0.49%) tells me the fund might be generating less than $200,000 in revenue. That's surely not enough to keep paying all the salaries associated with managing the fund. Considering the fund trades less than 14,000 shares per day, I think its days are numbered.
Destined for the "Euro Trash"
Finally we have the First Trust STOXX Euro Select Dividend Index ETF (FDD). This one has been around for a long time, since 2007. That's a little surprising since the fund only has $49 million in assets under management (AUM). Of course, that number was probably higher a few years back. As the European crisis worsened, money undoubtedly was withdrawn from this and many other Europe-focused funds. But that low AUM figure does put the fund at risk. FDD has expenses of 0.60%, and it's still probably generating only a few hundred-thousand dollars in revenue. It also has better trading volume than the other two funds, 32,000 shares per day, but that's still very low compared to the millions of shares bigger funds usually trade.
Bottom line: Let me be clear, none of these funds, to my knowledge, are about to be shut down. But the low assets and trading volumes are two warning signs that have presaged the extinction of other funds. Take it as a healthy reminder that it's not always a matter of what a fund offers. Just as important is how well the fund is doing under the hood. Be aware: These might be good investments at the moment, but might not be around for long.