By Ansh Chaudhary
The ETF Deathwatch list decreased in size in January. Ten exchange-traded products ("ETPs") were added to the list, and 23 funds were removed. Of the removals, 17 were removed due to increased health and six were due to asset managers closing their funds. Equities continued to rise in January, so the decrease in the size of the Deathwatch list was to be expected.
The funds added in January were a mix of actively managed, international, and niche products. One fund was added because its assets under management ("AUM") was consistently below $5 million for three months. The rest were added due to low average daily volume. These additions may have enough AUM to keep them from closure; however, our system takes into account both AUM and volume, so it's likely that should volume and interest remain low, these funds may be considered for closure. The low volume in these funds could be due to the nature of the investment product. Many of the funds on the Deathwatch list are actively managed funds. Because equity markets have been strong recently, investors may be opting to stick with passive equity funds rather than actively managed funds and strategies that offer downside protection.
The addition of niche ETF products to the list wasn't a surprise. The returns in the overall U.S. equity market have been strong, giving investors less reason to move money to actively managed and niche products. January has been rough for investors due to the outbreak of the coronavirus, fears of escalating tension between Iran and the U.S., and the impeachment trial of President Trump. Despite the overall negative sentiment at the start of January, U.S. equities continued their rally until the last week of January, when fears about the coronavirus increased. The fact that there were more removals from the Deathwatch than additions indicates January has been a strong month for markets. With so many negative headlines, it wouldn't have been a shock for it to have been a little rougher for overall volume in ETFs. What we saw instead is that investors are still confident in this economic expansion.
Fifty-three ETFs and ETNs on the January Deathwatch list have been in the market for more than 10 years. This is a long time for ETPs to exist while remaining on our Deathwatch list. Leveraged and short ETF instruments, as well as a number of commodity ETPs, dominated our list of funds older than 10 years. It's possible that the fund companies managing these products will allow them to remain active, as they may play a larger role for clients interested in active management.
The average asset level of the threatened ETFs on ETF Deathwatch decreased from $8.35 million to $8.01 million, and 66 products had less than $2 million in assets. The average age of products on the list increased from 50.53 months to 51.45 months, and the number of products more than 5 years of age remained at 131. The largest ETF on the list had an AUM of $25 million, while the smallest had assets of just $492,000.
The 10 ETFs/ETNs added to ETF Deathwatch for January:
The 6 ETFs/ETNs that were closed:
The 17 ETFs/ETNs removed from ETF Deathwatch due to improved health:
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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