The month of May brought the largest monthly decline ever in the number of US-listed ETFs and ETNs. Active listings changed by -14 after averaging more than +17 new products per month during the past three calendar years. Additionally, the six-month moving average of net new listings turned negative for the first time in history.

There were five new ETFs introduced during the month and 19 closures. The total number of listed products at the end of May stands at 830 (745 ETFs and 85 ETNs), the lowest level since last October. The quantity is down 15 from the start of the year and down 29 from the peak level of 859 established in early February prior to the closure of the Northern Trust NETS family of ETFs.

In the exciting world of ETFs, every day seems to bring an announcement of a new fund launch. So PowerShares' announcement earlier this month that it will shut down nearly 15% of its ETFs may have come as a shock to many investors.

But don't be alarmed. ETFs are still gaining rapidly in popularity, with some experts suggesting the industry will top the $1 trillion in assets mark before the end of the year. The ETF industry right now is in a "10 steps forward, 1 step back" mode, and the closure of these funds is nothing more than a small speed bump on an otherwise promising path.

On May 1, 2009, Invesco (IVZ) PowerShares Capital Management LLC announced that it would be closing 19 ETFs on May 18. Shareholders of record on May 18 will receive cash equal to the amount of the net asset value of their shares as of May 22. That cash value should include any capital gains and dividends left in the cash portion of investors’ brokerage accounts, according to PowerShares. While the shuttering of these 19 ETFs may not come as a surprise to some investors, especially in light of earlier ETF closings in 2008, they nonetheless change the landscape of the ETF world. Liquidity is an excellent indicator of viability in the ETF industry, but there is not a particular formula that dictates if, or how long, a fund will last if investor interest is lacking or waning. The closing of the 19 PowerShares funds this month provides an opportunity to sort through some of the ETF clutter and examine what can go wrong and why.

The incredible popularity of ETFs from 2007 to mid-2008 brought with it an onslaught of new, and often similarly themed, products to market. The unique way in which ETFs are launched has provided sponsors such as PowerShares and Claymore with the opportunity to launch multiple products at a time. This flood, however, has proved to be unsustainable, leading to multiple ETF closings across the industry. Despite the recent hit, PowerShares still remains a significant player in the ETF business, with a product line of 135 ETFs with assets of $25.8 billion as of March 31.

Invesco PowerShares announced on Friday that it plans to close 19 of its ETFs. The affected funds represent less than 1% of Invesco PowerShares’ total assets.

This type of action isn’t new to the ETF world as Claymore closed 11 ETFs last year representing less than 4% of their collective assets. Every ETF that comes to market, although well thought out, doesn’t always get traction. At one point the economics of keeping smaller funds open no longer makes sense.

Invesco PowerShares Friday (5/1/09) announced plans to close and liquidate 19 ETFs. The last day of trading for the affected products (listed below) will be May 18, with liquidation and distribution amounts determined by the May 22 value.

The FAQ (.pdf) has some additional information about the closing. PowerShares warns that starting in early May, the closure process “will cause each fund’s holdings to deviate from the securities included in its underlying index and each fund to increase its cash holdings, which may lead to increased tracking error.” Therefore, I advise all shareholders to sell their holdings as soon as possible, and use a limit order when doing so.

With numbers in the trillions being thrown around today, it was no surprise that the recently concluded $10.50 billion rescue package for Latvia failed to find its way into the news headlines. The emergency aid amounts to $4,000 for every man, woman and child in Latvia; and, in that respect alone, the IMF-driven bailout qualifies as the largest ever in relation to a country’s size. But, more importantly, all that the $10.50 billion will do is to postpone the need for Europe to address painful, long-outstanding issues relating to its integration.

For Europe, and for the Nordic region in particular, Latvia’s viability as a credible modern-day nation-state is crucial. “The concept of a successful communism-to-capitalism transition is being finally tested,” a parliamentarian in Riga, Latvia’s capital, declared as talks with the IMF wound down late last month. “Our success will influence not only shape of the rest of Baltics (including Estonia and Lithuania) but also the other former Soviet satellites in Eastern Europe.” Significantly, nearly 70% of the money for Latvia will originate in Europe, though the conceptual format of the package was structured by the IMF.

The number of ETFs on Deathwatch continues to grow as we enter 2009. My current list contains 139 names: 97 ETFs and 42 ETNs. The list includes any ETF/ETN that is at least six months old and had an Average Daily Value Traded of less than $100,000 in December.

Exchange Trade Notes are suffering from concerns of default risk. The Lehman Brothers (LEHMQ.PK) bankruptcy, which resulted in the demise of three ETNs, is causing investors to hesitate before throwing money into these products. Unless ETN sponsors to take steps to calm investor fears, their representation on the list is likely to grow in the coming months.

Recently, I published an ETF performance map on a year to date basis. Numbers were hovering around -50% for European ETFs and -60% for Asian ETFs, except Japan. I think it will be interesting to see which markets benefit from last week's rally the most.

Look at the above picture - it is a 12 month performance map for European Exchange Traded funds, and it's no surprise that it is a deep red color.

By Heather Bell

PowerShares once again broke new ground in the exchange-traded fund industry with the launch of the first ETFs of ETFs, the PowerShares Autonomic Global Asset Portfolios. The three funds were launched Tuesday on the American Stock Exchange and track indexes of ETFs designed by Boston-based advisory firm New Frontier Advisors [NFA].

Disappointing earnings reports sent European stocks tumbling last week, ending a brief early-spring rally and leaving PowerShares FTSE RAFI Europe ETF (PEF) down about 9% for the year through April 14. The fund’s losses were almost identical to the S&P 500’s fall for the period but compared favorably with the nearly 15% slide of the pan-European Dow Jones STOXX 600 Index.

PEF ranked 25th on the PowerShares Momentum Tracker Table last week thanks to a 19-spot gain from February 27, making it the table’s top-ranking international fund. The fund’s mediocre performance last week could drag on that momentum. That said, the struggles of the U.S. economy could smooth the way for PEF to ascend to the table’s upper reaches.

The market action over the last week has been a mystery to many US investors. The negative data that would have caused triple digit declines in months past, no longer moves the market. Can you imagine how investors would have reacted to our current employment and retail numbers if this data had hit back in Q1? Even Freddy Krueger would have been spooked. Not any more. The tide has turned. While US investors are baffled by this market resiliency in the face of recession, foreign investors know exactly what's going on.

Last week our CEO met with a group of Italian investors who described a very dark economic landscape across the European continent. The weak dollar has taken its toll on overseas tourism. Italy, France, Spain, Germany and the UK cannot handle another slow travel season. Look for governments abroad to do all they can to decrease the value of their own currencies or else they will find themselves headed towards depression. The US would prefer that the dollar remain low as profits abroad offset weakness at home, but the Treasury knows it can only last for a season, and that season is about to end. With Europe's back against the wall, the currency landscape is about to change. The performance of our stock market since 'Bear Stearns Monday' is evidence that this trend has already begun.

What does that mean for investors? It means keep a close eye on spreads and premiums. I glanced at the current spreads for the 18 HealthShares ETFs, and they averaged about 12 basis points at the close of trading yesterday. The day-end premiums-to-NAV were much higher, but not really applicable, as they can be thrown off if the last trade in the fund is at 3:30pm and the underlying trades through until 4pm.

Three of the ETFs track broad-based international indexes designed by consulting firm Quantitative Strategies Group. These quant-focused funds use a variety of factors -- balance sheet strength, capital structure, leverage, earnings growth, earnings quality and price momentum -- in an attempt to identify stocks that will outperform the market.

The new ETFs and a brief description of each are below.

PowerShares Global Water (PIO)

PowerShares Global Clean Energy (PBD)

PowerShares Dynamic Developed International Opportunities (PFA)

PowerShares Dynamic Asia Pacific (PUA)

PowerShares Dynamic Europe (PEH)