By Murray Coleman
With 136 exchange-traded funds still on the market with less than $10 million in assets, the closing of five unpopular bond exchange-traded funds by Ameristock this week isn't likely to be the last, say industry observers.
Although economics within the industry can differ greatly between fund shops, the most widely used rule of thumb has been that ETFs with less than $10 million in assets are most exposed to either be swallowed or shuttered. That's viewed as the bare minimum to stay afloat.
Another common yardstick is to look at funds that have been in existence for at least a year. That way, good ideas not well-known have a chance to attract attention.
Using both those factors to weed out potential liquidation suspects from a larger list provided by Morgan Stanley, some 58 underachievers move into the spotlight.
That group, says the firm's veteran ETF analyst Paul Mazzilli, can be labeled as the industry's equivalent to an endangered species list.
Prime examples he points to are the XShares health sector ETFs. Several at this point still only have around $2 million in assets.
"The bigger companies can afford to clean up their messes when they make a mistake in the marketplace," Mazzilli said. "XShares doesn't have the assets or marketing clout to turn a lot of their funds around."
Also on that endangered list are:
- Four from iShares. All are based on FTSE NAREIT real estate indexes.
- Five from Claymore, which was the first major ETF shop to take the axe to their own lineup when it shuttered 11 earlier this year.
- First Trust has 14 such ETFs. The largest is the First Trust Multi Cap Growth AlphaDEX Fund (AMEX: FAD).
- PowerShares has three. Those are the FTSE RAFI Consumer Services Sector Portfolio (NASDAQ: PRFS), the FTSE RAFI Consumer Goods Sector
