ETF Deathwatch For March 2014: Have Income Funds Reached Saturation?

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 |  Includes: BRAQ, DWAQ, EMHD, FMF, NASH, ONN, RVNU, RWXL, SDYL, YDIV
by: Ron Rowland

Twelve products join and thirteen leave ETF Deathwatch this month. The net reduction of one places the membership count at 314, consisting of 211 ETFs and 103 ETNs. Interest rates have been near historic lows for a few years now. This prompted a significant surge in the introduction of income related ETFs, but we’re seeing the first signs that perhaps this niche is saturated and supply is now outpacing demand.

Five of the products joining ETF Deathwatch this month have an income objective. Two are classified as dividend funds – EGShares EM Dividend High Income ETF (NYSEARCA:EMHD) targets dividend stocks in emerging markets, and ETRACS Monthly Pay 2x S&P Dividend ETN (NYSEARCA:SDYL) uses leverage to essentially double the yield of the popular SPDR S&P Dividend ETF (NYSEARCA:SDY). ETRACS Monthly Pay 2x DJ International Real Estate ETN (NYSEARCA:RWXL) also uses leverage to double the yield but has failed to catch on with investors. The addition of First Trust International Multi-Asset Diversified Income (NASDAQ:YDIV) suggests that multi-asset income products may also be reaching saturation. The fifth income oriented fund joining the list is db X-trackers Muni Infrastructure Revenue Bond (NYSEARCA:RVNU).

Among the other new names, nearly every ETF follower predicted the Nashville Area ETF (NYSEARCA:NASH) would wind up here, but ETRACS Fisher-Gartman Risk On ETN (NYSEARCA:ONN) was highly touted by many analysts when it came to market. We took a different view, stating that it would suffer from being tied to an outdated and unchangeable definition of risk. Its companion, ETRACS Fisher-Gartman Risk Off ETN (NYSEARCA:OFF), went on ETF Deathwatch last October.

Market Vectors Bank and Brokerage (NYSEARCA:RKH) began life as HOLDRS Regional Banks (RKH) back in 2000. It joins ETF Deathwatch this month, proving that 14 years on the market does not guarantee survivability.

Nine products came off the list due to improved health in the form of increased assets, more active trading, or both. The recent conversion of PowerShares Dynamic OTC (PWO) to PowerShares DWA NASDAQ Momentum (NYSEARCA:DWAQ) certainly helped its fate. PWO launched in May 2003, and there are only 112 older ETFs still trading today. The fund’s assets quickly grew to more than $185 million in 2005, but they had shrunk to less than $25 million when the ETF joined the November 2012 ETF Deathwatch. The conversion to DWAQ has pushed assets back above $25 million, created a swell in trading activity, and given the product new life.

ETF Deathwatch continues to provide a good warning about funds that are in danger of closing, as four products on the list last month have now been closed and liquidated. PowerShares Dynamic Magniquant (NYSEARCA:PIQ), PowerShares KBW International Financial (NYSEARCA:KBWX), PowerShares Lux Nanotech (NYSEARCA:PXN), and PowerShares MENA Frontier Countries (NASDAQ:PMNA) are no longer with us and have been removed from the list.

The average age of products on Deathwatch decreased from 42.2 to 41.6 months with 77 of them more than five years old. The average asset size increased slightly from $6.6 million to $6.8 million, and 50 products have less than $2 million in assets. Fourteen products went the entire month of February with zero volume, and 158 (10%) saw no action on the last day of the month.

Here is the Complete List of 314 Products on ETF Deathwatch for March 2014 compiled using the objective ETF Deathwatch Criteria.

The 12 ETPs added to ETF Deathwatch for March:

  1. db X-trackers Muni Infrastructure Revenue Bond (RVNU)
  2. EGShares EM Dividend High Income ETF (EMHD)
  3. ETRACS Fisher-Gartman Risk On ETN (ONN)
  4. ETRACS Monthly Pay 2x DJ International Real Estate ETN (RWXL)
  5. ETRACS Monthly Pay 2x S&P Dividend ETN (SDYL)
  6. First Trust International Multi-Asset Diversified Income (YDIV)
  7. First Trust Morningstar Managed Futures Strategy (NYSEARCA:FMF)
  8. Global X Brazil Consumer (NYSEARCA:BRAQ)
  9. iShares Dow Jones-UBS Roll Select Commodity (NYSEARCA:CMDT)
  10. Market Vectors Bank and Brokerage (RKH)
  11. Nashville Area ETF (NASH)
  12. SPDR Russell 1000 Low Volatility (NYSEARCA:LGLV)

The 9 ETPs removed from ETF Deathwatch due to improved health:

  1. AdvisorShares EquityPro ETF (NYSEARCA:EPRO)
  2. First Trust ISE Global Platinum (NASDAQ:PLTM)
  3. Global X Junior Miners (NYSEARCA:JUNR)
  4. iPath DJ-UBS Platinum ETN (NYSEARCA:PGM)
  5. iPath US Treasury 5-Year Yield Bear ETN (NASDAQ:DFVS)
  6. iShares MSCI Emerging Markets Value (NASDAQ:EVAL)
  7. PIMCO 3-7 Year U.S. Treasury Index (NYSEARCA:FIVZ)
  8. PowerShares DWA NASDAQ Momentum (DWAQ, formerly PWO)
  9. PowerShares KBW Capital Markets (NYSEARCA:KBWC)

The 4 ETPs removed from ETF Deathwatch due to delisting:

  1. PowerShares Dynamic Magniquant (PIQ)
  2. PowerShares KBW International Financial (KBWX)
  3. PowerShares Lux Nanotech (PXN)
  4. PowerShares MENA Frontier Countries (PMNA)

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.