Exchange Traded Funds, or ETFs, have gained popularity in recent years. The numbers of index ETFs have multiplied and the market for them has seen almost unparalleled growth. News in recent days suggests that the golden days of the asset class may be coming to an end.
The ETFs that will be delisted by Guggenheim investments includes Guggenheim 2x S&P 500 ETF (NYSEARCA:RSU), Guggenheim Inverse 2x S&P 500 ETF (NYSEARCA:RSW), Wilshire 5000 Total Market ETF (NYSEARCA:WFVK) and Guggenheim Airline ETF (NYSEARCA:FAA). The ETFs have been thinly traded and have been the subject of much criticism.
The move has surprised the market because most ETFs that have been liquidated to date have been niche, targeted ETFs. Some of those were experimental and were abandoned after their niche failed to attract enough investment. It’s surprising that the wider market ETFs offered by Guggenheim have failed to garner enough attention to justify keeping it alive.
The Guggenheim Airline ETF (NYSEARCA:FAA) is the only ETF that tracks the progress of the airline industry, but it’s total investment stands at just $21 million. The Wilshire 5000 Total Market ETF (NYSEARCA:WFVK), which tracks the entire market, is worth just $ 10 million. The news has many worried that ETFs have hit their peak in popularity.
The Guggenheim Airline ETF (NYSEARCA:FAA) jumped by more than 33% in 2012, despite the fact that trading on the index remains sluggish. Now, Guggenheim is doing away with it entirely. The lack of substantial trading in those ETFs may be the symptom of a wider disease affecting the entire asset class.
ETF explosion and multiplication in recent years could not go on forever. There had to be a point where growth rates slowed, and we may have hit it. The question is whether these ETFs were traded poorly because of competition, or because investors don’t trust ETFs anymore. Credit Suisse got out of the business, and (on the ownership side) Argonaut Capital sold all its ETF positions in Q4 2012.
The other ETFs that will stop trading are Guggenheim ABC High Dividend ETF (NYSEARCA:ABCS, Guggenheim MSCI EAFE Equal Weight ETF (NYSEARCA:EWEF), Guggenheim S&P MidCap 400 Equal Weight ETF (NYSEARCA:EWMD), Guggenheim S&P SmallCap 600 Equal Weight ETF (NYSEARCA:EWSM), and the Wilshire 4500 Completion ETF (NYSEARCA:WXSP).
Guggenheim investments announced that it will suspend trading on these ETFs on March 15th. Shareholders who still have capital in the ETFs will receive notice of the liquidation of their assets by March 22. ETF trading will be watched closely in the weeks and months to come for signs of weakness. This may just be the start of closures.
