Fourteen ETPs joined the ETF Deathwatch and seven made an exit. The membership roll now stands at 339 (228 ETFs and 111 ETNs). The net increase of seven marks the second month in a row of list growth, increasing the probability that the one-year old improvement trend is nearing its end.
One of the additions this month is the ETRACS Fisher-Gartman Risk Off ETN (NYSEARCA:OFF), launched in November 2011. My initial review warned, “The index composition appears highly optimized for market conditions during the backtest period.” The definition of what traders and investors consider “risky assets” changes over time, and this ETN, and its Risk On counterpart (NYSEARCA:ONN), have no ability to change with the times. This past week was an excellent example, when supposedly “risk-free” T-Bills suddenly became a risky asset.
Products on ETF Deathwatch have an average age of 38.8 months, which suggests many sponsors are erring on the side of patience when it comes to the tough decision of closure. However, sometimes sponsors can no longer justify the continuing unprofitable situation and closure becomes inevitable. In many instances, that realization arrives quickly. More than 25% (93 out of 369) of delisted ETPs fail to make it to their first birthday.
The average asset level of the funds on ETF Deathwatch is just $6.5 million. If you assume an expense ratio of 0.75%, then they are averaging less than $50,000 in annual revenue. BlackRock (NYSE:BLK) recently closed the iShares Diversified Alternative Trust (former ticker ALT), an ETF with more than $56 million in assets and a 0.95% expense ratio. There were probably many factors involved in the decision, but somehow the $532,000 in annual revenue was not enough for BlackRock.
Owning a product that closes is not a disaster – it’s more of an inconvenience. If you learn about the closure before its delisting, you can sell your shares on the open market and avoid many potential problems. The real danger of the funds on this list is their illiquidity. Trading is sporadic, is often at an extremely wide bid/ask spread, typically has little depth on the bids, and the lack of volume makes meaningful price arbitration nearly impossible.
On the last day of September, 157 of the 1,509 listed ETPs did not trade. In other words, more than 10% were of zero interest to either traders or investors. Seven products went the entire month without any trades, and iPath Short Enhanced MSCI Emerging Markets ETN (NYSEARCA:EMSA) is still awaiting its first trade of 2013. It is quoted today with a bid of $50.00 for 100 shares, and someone is asking $130.87 for 300 shares. Anyone care to take a position in EMSA?
Here is the Complete List of 339 Products on ETF Deathwatch for October 2013 based on the objective ETF Deathwatch Criteria.
The 14 ETPs added to ETF Deathwatch for October:
- CurrencyShares Singapore Dollar Trust (NYSEARCA:FXSG)
- ETRACS Fisher-Gartman Risk Off ETN (OFF)
- ETRACS Mthly Pay 2x DJ Select Dividend ETN (NYSEARCA:DVYL)
- First Trust BICK (NASDAQ:BICK)
- Global X Junior MLP ETF (NYSEARCA:MLPJ)
- iPath Seasonal Natural Gas ETN (NYSEARCA:DCNG)
- iShares B – Ca Rated Corporate Bond (BATS:QLTC)
- iShares Baa – Ba Rated Corporate Bond (BATS:QLTB)
- iShares MSCI Far East Financials (NASDAQ:FEFN)
- iShares MSCI Hong Kong Small-Cap (NYSEARCA:EWHS)
- PowerShares DB 3x Long 25+ Treasury ETN (NYSEARCA:LBND)
- ProShares Short Basic Materials (NYSEARCA:SBM)
- ProShares UltraShort Russell2000 Growth (NYSEARCA:SKK)
- WisdomTree Commodity Currency (NYSEARCA:CCX)
The 6 ETPs removed from ETF Deathwatch due to improved health:
- PowerShares Dynamic OTC (PWO)
- PowerShares KBW Insurance (NYSEARCA:KBWI)
- PowerShares S&P SmallCap Materials (NASDAQ:PSCM)
- ProShares Ultra KBW Regional Banking (NYSEARCA:KRU)
- SPDR S&P International Financial (NYSEARCA:IPF)
- VelocityShares 3x Inverse Crude ETN (NYSEARCA:DWTI)
The 1 ETP removed from ETF Deathwatch due to delisting:
- iPath Short Enhanced MSCI EAFE Index ETN (NYSEARCA:MFSA)
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.