NEW YORK ( TheStreet) -- Lack of investor interest has prompted the closure of four Claymore Securities ETFs. While popular Claymore funds like the Claymore/AlphaShares China Small Cap Index ETF ( HAO), Claymore/BNY Mellon BRIC ETF ( EEB)and the Claymore/Delta Global Shipping Index ETF ( SEA) are large, liquid funds with high trading volumes, Claymore's roster is also laden with funds that haven't seized traders' attention. Dec. 11 will be the last day of trading for the Claymore/Morningstar Information Super Sector Index ( symbol), Claymore/Morningstar Manufacturing Super Sector Index ( MZG), Claymore/Morningstar Services Super Sector Index ( MZO) and the Claymore U.S.-1-The Capital Markets Index ( UEM). The four failed funds, dubbed "lightly followed" by Claymore's press release, are not the only funds that have failed to attract investors. Claymore has already closed 13 funds in the, due to lack of trading, and several other low-volume funds still remain on the roster. The four Morningstar-braded funds illustrate the fact that funds that look good on paper do not always function well in the open marketplace. At the top of MZN's underlying portfolio are companies like Apple ( AAPL), Microsoft ( MSFT) and IBM ( IBM), which are some of the most highly traded companies listed on the market today. The liquidity of MZN's underlying portfolio, however, did not translate to liquidity for the ETF itself. MZN's three-month average daily trading volume is less than 1,000 shares. While Morningstar, a well regarded mutual fund rating company with sharp analytical commentary, is certainly a powerful brand in the financial world, the four failed ETFs are evidence that funds need more than name-brand index. Claymore's press release about the funds notes that assets in MZN, MZG, MZO and UEM represent less than 0.70% of the company's total ETF assets.
Other lightly traded funds on Claymore's roster include the Claymore/Ocean Tomo Growth ETF ( OTR), the Claymore/Zacks Country Rotation ( CRO), Claymore/Sabrient Defender ( DEF)and Claymore/BNY Mellon EW Euro-Pacific LDRs ( EEN), among others. ETF commentator Ron Rowland lists 13 currently trading Claymore ETFs on his "ETF Deathwatch." Current shareholders of the to-be-shuttered funds have three options in dealing with the upcoming closings. Investors can choose to sell shares of MZN, MZG, MZO and UEM prior to the trading halt on Dec. 11, potentially sell their shares to certain brokers between Dec. 11 and Dec. 18 or wait for liquidation on Dec. 18 and receive the value of their shares at that time. When dealing with the shuttering of an ETF investment, opportunity cost is the biggest factor. Many investors will want to sell their shares before the halt of trading on Dec. 11 in order to reallocate funds to a different investment. The downside of this choice is that an abundance of sellers can potentially depress the market price of these ETFs, and investors may have to sell their funds at deep discounts. Waiting for liquidation, on the other hand, means that money invested in the ETF will be tied up for nearly a week. If the underlying value of the ETF drops dramatically during this time, an investor will simply have to sit on their hands and wait to see what the value of the fund will be on its liquidation date. The unique structure and trading of ETFs causes a kind of natural selection in the ETF industry.
Products that attract little investor interest are generally shuttered over time. This process helps to weed out weak products and improve the overall health of the ETF lineup. To avoid purchasing doomed ETF products, make sure to check for clues like average daily trading volume and assets under management. This information is easily available on both general financial websites as well as ETF issuer web pages. Stay clear of ETFs with low trading volumes and opt for large, liquid established funds. -- Written by Don Dion in Williamstown, Mass.