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ETF Closures Can Take Two Routes

Claymore, now known as Guggenheim, recently went down this route when it announced its plans to change Claymore/Sabrient Stealth ETF (STH) into the Wilshire Micro-Cap ETF (WMCR).

The company could have closed STH and launched WMCR. However, the firm instead opted to change STH's underlying index, name, and ticker symbol, thereby completely altering the fund's focus. There was no need to halt STH's trading or liquidate fund's assets. One day investors were holding STH and on the next, WMCR appeared in its place.

While investors do not have to worry about remembering closure dates or having their money being tied up in this scenario, this unique type of fund closure can also cause troubles. For instance, in the event that an unprepared STH investor was also holding a fund such as the First Trust Dow Jones Select MicroCap Index Fund (FDM), the investor could get caught with overexposure to this volatile part of the market when STH turned into WMCR.

The recent spell of fund closures hitting the ETF industry has brought to light the importance of avoiding unpopular, illiquid funds which stand the greatest risk for shuttering. However, in the event that you are caught holding a product that gets slated for execution, it's possible to avoid headaches by paying close attention to how the fund's closure progresses.

Written by Don Dion in Williamstown, Mass.

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At the time of publication, Dion Money Management was long PowerShares DB Agriculture Fund and iShares Gold Trust.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.
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