ETFs: Survival of the Fittest
The shuttering of XShares' AirShares EU Carbon Allowances Fund (ASO) adds a note of sobriety to the ETF success story amid the renewed rush to bring funds to market.
ASO is not the first ETF to close its doors, and it will not be the last. As the blossoming ETF industry prepares to go toe-to-toe with mutual funds, it has already experienced some thinning in its ranks.
In 2008 nearly 50 ETFs were forced to fold as methodologies that looked good on paper failed to perform in the open market. Viability can often be sensed from trading volume, and the black and white numbers that roll across the trading tape give weak funds nowhere to hide.
XShares' ASO is not the only narrowly focused XShares fund to get the ax. In June 2008 XShares closed down seven realty funds. In August 2008, XShares shut down 15 HealthShares ETFs that focused on themes like cancer and enabling technologies. At the time, the parent company's interim Chief Executive Joseph Schocken noted the closed funds were "those ETFs that didn't resonate with investors."In November 2008, XShares managers filed a law suit against former company managers and officers, charging breach of fiduciary duty, breach of loyalty duty, theft of business opportunity, corporate mismanagement, misappropriation of corporate assets, self-dealing and fraud. While XShares has undoubtedly seen more than one factor affect the success of their product line, the overwhelming reason for fund closings has been a lack of assets and liquidity. ASO's average daily trading volume was less than 2,000 shares and its 0.85% management fee is higher than the 0.75% charged by also-struggling competitor iPath Global Carbon (GRN).
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV