The rate of ETF launches is slowing in Europe. Some 553 new exchange-traded products were launched in 2018 whereas only 107 have been launched so far in 2019.
Here is a breakdown of the kinds of ETF and ETP that have been launched this year. (Each share class of a new ETP is counted as a separate launch in these figures. The launches include new share classes for existing ETPs.):
European ETF launches (1 January 2019 to 27 May)
CategoryNumber of ETFsUK equities1Europe equities6US equities10Japan equities3Emerging market equities8Global equities1Fixed income and cash45Thematic equities (excluding crypto)3Crypto and blockchain7Commodities4ESG equities20TOTAL107
Source: Ultumus. The categories were created by the author.
It is no surprise that there have been plenty of launches in the crypto and ESG spaces and a low level of activity in UK equities is equally predictable given uncertainty around Brexit.
The slowdown in launches likely reflects the fewer gaps in the market for ETF providers to exploit and wider concerns about the prospects for financial markets heading into the second half of the year.
That said, ETFs are still being launched in areas where ETF providers are finding opportunities, and there is a fair bit of activity in the thematic space. The iShares Electric Vehicles and Driving Technology UCITS ETF (ECAR) is a good example, and seems to be well positioned in an attractive part of the market. The ETF is comprised of 93 stocks that are linked to changes in the car industry and these businesses are not just in the US, there are plenty in Japan and other parts of Asia as well.
No doubt BlackRock is hoping this ETF will repeat the success of the iShares Automation & Robotics ETF. However, so far ECAR has only got to $9m assets under management (AUM) having launched in February this year.
It is also worth noting that ‘plain vanilla’ equities ETFs are still being launched despite many commentators’ focus on smart beta and ESG. Two of these launches are part of Amundi’s new ‘Prime’ range of low-cost ETFs: the Amundi Prime USA UCITS ETF and the Amundi Prime Europe UCITS ETF.
Liquidations in 2019
Looking at liquidations, 23 products have been chopped so far this year compared to 43 in 2018.
Date of closureNotesAmundi ETF MSCI EMU High Dividend UCITS ETF - EURJan 10, 2019Another share class still existsAmundi Euro Corporates UCITS ETF ( C ) - EURJan 10, 2019Another share class still existsXtrackers MSCI Pan-Euro UCITS ETF (DR) 1C EURJan 14, 2019Complete delistAmundi Euro High Yield Liquid Bond IBOXX UCITS ETF (D) EURJan 10, 2019Distribution class has been closed, accumulation class still existsAmundi MSCI Europe UCITS ETF (D) EURJan 10, 2019Distribution class has been closed, accumulation class still existsAmundi MSCI Europe High Dividend Factor UCITS ETFJan 10, 2019An accumulation class still existsPowerShares FTSE UK High Dividend Low Volatility UCITS ETFFeb 6, 2019Complete delistInvesco Italian PIR Multi-Asset Portfolio UCITS ETFMay 15, 2019Complete delistLyxor FTSE US Quality Low Vol Dividend (DR) UCITS ETFFeb 27, 2019Complete delistAmundi S&P 500 UCITS ETF (D) EURJan 10, 2019Other classes still existUBS ETF (IE) Factor MSCI USA Total Shareholder Yield UCITS ETFApril 30, 2019Main class (all classes delisted including three below)UBS ETF (IE) Factor MSCI USA Total Shareholder Yield UCITS ETFApril 30, 2019Hedged to Swiss Franc classUBS ETF (IE) Factor MSCI USA Total Shareholder Yield UCITS ETFApril 30, 2019Hedged to euroUBS ETF (IE) Factor MSCI USA Total Shareholder Yield UCITS ETF UBS ETFApril 30, 2019Hedged to sterlingUBS ETF (IE) MSCI EMU Cyclical UCITS ETFApril 30, 2019Complete delistUBS ETF (IE) MSCI EMU Defensive UCITS ETFApril 30, 2019Complete delistUBS ETF (IE) MSCI USA UCITS ETFApril 30, 2019Hedged to Swiss Franc class has been delistedUCITS ETF UBS ETF (IE) Solactive Global Oil EquitiesApril 30, 2019Complete delistBULL EL X2 HJan 26, 2019ETN delistBULL OLJA X2 HApril 17, 2019ETN delistiShares US Fallen Angels High Yield Corp Bonds UCITS ETFFeb 25, 2019Complete delistBNP Paribas Easy Stoxx Europe 600 Health Care UCITS ETFMay 7, 2019Complete delistBNP Paribas Easy Stoxx Europe 600 Utilities UCITS ETFMay 7, 2019Complete delist
Looking at the table, the majority of delistings have been for smart beta and thematic/sector ETFs. In some cases, only one or two classes of an ETF or ETP have been shut; there has not been a complete delisting.
2016 to 2018
Let’s look at the trends for the years between 2016 and 2018 in the table below.
YearLaunchedLiquidatedInvolved in merger2016470645201744915231201853343178
In each year, there are many more launches than liquidations which must be a healthy trends. It is interesting to note the numbers of launches has been fairly steady whereas the number of liquidations has been more volatile.
As things stand, there are 4235 exchange-traded products in Europe including different share classes for what are otherwise the ‘same’ product. These different share classes could be driven by the need to list on different exchanges or different currencies. There are more ETFs and ETPs listed in Europe than in the US – where there are around 3000 – even though the European market is much smaller in terms of assets under management.
Why are ETFs closed?
It is normally because the product is not making money for the provider. Another possible explanation is because a provider has decided to pull out of a particular part of the market. That kind of strategic change often happens when two providers merge – you might also see some funds merge when a corporate merger happens. Share classes of funds are also sometimes merged, or one or more class is shut. This happens when a provider realises that running several different versions of what is basically the same fund just doesn’t make financial sense.
What happens when an ETF liquidates?
Normally the provider will inform investors that the ETF is going to be shut. You then have the option to sell immediately or wait until the fund is wound up. If you wait until the wind-up, you should receive cash equivalent to the Net Asset Value (NAV) of the fund.
An ETF liquidation shouldn’t be disastrous for an investor but it may be irritating. The biggest concern is that a tax charge for a capital gain may be triggered. The timing of that charge may not fit in with your tax strategy.
You have also got to go through the hassle of finding another ETF to replace the closed one. And, on top of that, there is also a small risk that you could miss out on some significant investment growth while you wait for the cash from the ETF provider at closure.
How can you avoid an ETF closure?
If you invest in an ETF which has a low level of AUM, the risk of closure is always higher. It is harder for a provider to make a profit from a smaller fund. If you are looking at a recently launched ETF, then a low AUM figure is almost inevitable, so you then have to make a judgement on whether the fund is likely to grow its assets significantly over the next couple of years. Low trading volume is also not a good sign as it suggests a lack of interest in the ETF from the market.
Finally, it is also worth looking at the size and strength of the provider. The bigger, the better.
ETF Insight is a new series brought to you by ETF Stream. Each week, we shine a light on the key issues from across the European ETF industry, analysing and interpreting the latest trends in the space. For last week’s insight, click here.