A Halloween-Inspired Stroll Through the ETF Graveyard (Which Is Getting Really Crowded)

now into the scary stuff. He wants to scare people. And um, whether we go out probably I think around here there's one street that closed that has a big deal every year. But if we do, usually when we go out with him, you just wear a mask and and that sort of gives us a sense of safety. But I think we'll probably try it. And you're younger guy, he's four, and he um, he just kind of isn't

really there yet. He's just not into wearing anything. He doesn't wear a jacket like, so we have problem getting him out and winner let alone in a costume. He'll just tag along and chase Gabriel up and up and down the street, that that'll be his thing. He'll have a good time too. So bring this back to E t F s uh Eric. This year, like every year, there are closures, and so we're going to talk about the e t F Graveyard this episode. Yeah, it's a great term for it. There's over eleven ETFs that are

dead rest in peace. That's one in every four launches, basically dies. This year has been particularly brutal. There's been about two d and twelve closures, um and that is already a record by about fifty, right, so this is more than ever. And really the difference this year was what we call exotics leverage e tps and e t n s, which normally make up a certain percentage, are

really punching above their weight enclosures. And that's because March wiped a bunch of them out because the volatility was just too strong and so a lot of the issues like you know what, we gotta get out of here. Um. So that's really the difference maker this year. But there's always closures. I mean, this is an industry with a lot of cash coming in, so you get a lot of spaghetti, get thrown on the wall and a lot of the stuff doesn't make it and joining us to

talk about the closures. Todd rosen Bluth, who's the director of et F Research at c f R, A also regular on the show, as well as Claire Balantine who's back with us as well. She's a cross s at reporter with Bloomberg. Does this time on Trillions lead Prave Todd, Claire, thanks for joining us on Trillians. Great to be with you guys. Thanks for having us. Todd, I want to start with you what jumps out to you about. I

think there's a couple of key themes. Eric touched on leverage products and E t N s and we can come back to that, but the traditionally E t F products. I think there's two main things that were happening. One is Investco, which has made a number of acquisitions including Guggenheim and Oppenheimer Funds. In the last few years. They called their their lineup and there's a lot of overlap between what they acquired and what they had that was successful.

So we saw a number of products earlier in the year UH get cut out of the overall lineup, and that's a good thing. I think for the overall industry. And then secondly, and we can dive deeper into all of this, is there was a wave of launching currency hedge e t f s a few years back. Uh. This was back when wisdom Tree was having success with d x J uh HAD Japan and h E d J the hedge Euro product. Everybody wanted a piece of that pie. Money didn't go in. It takes a couple

of years later. Now the products are closing. I share his Wisdom Tree DWS. All those firms were closing a large number of these uh, currency hedge products. Yeah, and let me jump in and say also a minimum ball low low ball. And currency hedge became like this fad. I call it a craze. Todd doesn't like that term. But when like something that makes up two percent of the assets start taking the flows, what you have is a rush of products. And like here here's something I

shares clothes this year. Listen this currency hedged Italy. I mean there's barely anybody buying the regular Italy et F currency hedged Australia. UM. They also had a minimum volve Japan. I mean some of these they just went one step too far. And they know it, and they've you know, reined it in a little bit. And I think that's you see that most years. I think, Claire, what's what jumped out to you as you sort of looked into

everything here? Yeah, what was interesting to me is the fact that a lot of these bigger asset managers and issuers were closing funds. I think there's this narrative about, you know, smaller issuers really struggling against these bigger players, and so you know, one might expect that a lot of the smaller and more niche funds were closing, but when I'm looking at the list of funds that closed, a lot of it is these these bigger players, Um.

That seems like they can sort of, you know, try out these strategies and if it doesn't work, then they can close them, especially with Investco closing so many of them. Um. And then the other thing that I thought was interesting was really those leverage products in the E T N s. And you know, this year has just been so volatile and crazy in general, and it seems like after what we saw in March that really, um, you know, put in a stark relief what some of these funds actually

did and their performance. It's interesting you say that because we did notice, and I think it was um when black Rock closed their first fund. I believe it was called ALT it was an alternative fund. Ever since then, the number of closures just jumped up. I think people saw, well, if black Rock will close a fund, then there's no

shame in it anymore. There's no stigma. And I think that's a great point, I think, and there really shouldn't be if you if you have no assets and no one cares and the spreads wide and out, just just

get rid of it. Although on the flip side, the other voice would say, well, sometimes you need to hang on for three or four years for your moment in the sun, because we've seen a couple of times where an E T F that is in the graveyard, like the short Squeeze et F for example, would have been having a great year this year if it had just hung on. So there's two conflicting messages there with when to throw in the towel. Yeah, I remember we used to have another airline ETF that's out there, f A

A that would have been a good product. Given you guys have covered how J E T S has performed, and got the assets. It would have been nice to have a competitor in that space, but we no longer have that. So actually, I want I want to add a little context here, which is, and you kind of hinted at it a little bit there, Eric, let's just be clear for clear about it for people, how many closures have we had this year and how does that

compare in context to previous years? Anomaly or is this part of the trend that there's just more calling every year? So if you look at the chart, it's a trend. I mean it's been building up, and the spread between launches enclosures have has been coming down. In other words, closures has made that spread smaller. That said, this year is is an outlier. I mean you're already way past the record. I mean, what are your past the record already?

So to me, this year is an outlier, but it also is part of the trend of more closures every year starting in about two thousand thirteen fourteen. Um, Like I said, I think that I share is et F closing kind of kicked off a lot. Plus the industry is getting older, and how many of the closures this

year are pandemic related? Do you think I would say in all time, leverage ETFs make up about nine eight percent of all closures, even they only make up like two percent of the assets, so they definitely punch above their weight enclosures. But this year they made up e t n is normally make up about fifteen percent of the closures. They made up nineteen percent this year. So

I think those were really busted up in March. I think March, these leverage ETFs have to reset every day, and when the markets limit up limit down, resetting really messes up their math. It messes up what they're trying to do. And I think if you took March out and you made in March never happened and it was like a normal year, I don't think those would have closed, and I think we would be more at the one

fifty level. But there's been about fifty leverage GTF that I think specifically closed because of the pandemic and what it did in March with the volatility. Yeah, I totally agree, and I think especially from those issuers like Direction and pro Shairs, you know, there wouldn't really be an impetus

or a reason to close these funds. You know, at a certain time but after the March volatility that we saw that really you know, led to that I think we're also seeing is that the firms that are not closing the leverage and the et N products, firms like Global x, U firms like Wisdom Trade, Direction that's doing it for their non leverage products is what they're also launching.

So we've seen Global x increase the number of thematic oriented etf so it's not surprising that they closed some of their smart data products that haven't been as popular. Um you know, we've we've seen it with other firms that are doing this as well. Direction has had success with their work from home et F and thematic products, so that you know, they closed the suite of these relative weight products a little bit faster than we had expected.

But it's it's just hard to be able to compete and have a broad line up without enough assets in them. And so we're seeing asset managers called the herd a little bit to focus on where their priorities are going in the future instead of where it was three years ago. Okay, Todd, I have a really basic question for you, which is, say I own something and it closes what happens to my money, So it's really not that big a deal.

It's a it's a little bit of a big deal in that you are forced into the sale and there's a capital gain implication and a tax implication. Basically it was sold, and that if you held on until the last trading day then you actually will get the money that's there. It's probably not a good decision when you hear that your et F is closing. It's probably worthwhile to just exit the position so that you're trading when they're actually is other people that might be trading as well,

and there's redemptions that can take place. And thankfully in the ETF industry there's often two or three or four other products that are in the broad style. They may not be the same, and we certainly it's see if they think it matters what's inside. But there are other products that are out there. Yes, you couldn't buy a currency hedge Italy product, but you could still buy Italy where you could buy a currency hedge Europe product in the case of that I Shares example that Eric offered

Um and Todd. Though we should also mention let's say you don't do anything like you you don't even get the notice that your et F is closing. You know, you're out to lunch. What Howen says, the e t F will then redeem the the assets and then send you a check. Basically, now you could have capital gains to deal with. I think that's probably the worst case scenario.

Would you agree, Yeah, it's that's the worst case scenario is that if you've held this for a while, UM, you will get a capital gain implication and then you'll have to find something else to do with your money. But there'll be other choices that are at there. But I think we as an industry fear these uh e t f that are closing that get a lot of attention from a closure rate, but they're closing for the reasons that there's just not a lot of money. So

it's not impacting that many investors. As you mentioned, most of the products that are closing are under twenty five million in assets overall. Yeah. Well, on on the topic of finding other options for your money. UM, I think it's interesting too that this year we still have seen a ton of e t F launches. UM. The data that we have is two eighteen funds that started trading, and so you know, if one of these funds closes.

There really are so many more options, and I think that also points to you know, maybe the future of closures is if so many more funds are launching. You know, the e t F rule has made it easier than you know. I think that the rate of closures could even continue to be, you know, move up and locksed up with how many launches there are. Yeah, I mean I think so too, And I think it's fine. I once sort of static of apps that are launched clothes, so E t F it's not as bad as apps

at least yet. Okay, So I want to talk about other notable closures, Eric with another one that that you noticed, well, you know, we went over to load the n C seventeen crowd is what I call the Velocity Shares t vix u w T. I mean, these are beloved by the robin Hood crowd, and they lost a lot of their playthings, but they found other ones in like t q q Q and those kind of e t s. But t VIX was probably, if I could be wrong, but the biggest DTF efort to delist and probably the

most traded. I mean, the thing was very very robust. The news I have a feeling. Janice was just like, we don't really want to be involved in this all the time anymore, and they closed that out. Janice also closed too theme ETFs, which I thought was interesting, slim and organ the obesity e t F S and the organic CTF And I don't think that was really Janice's personality. When you think Janice, do you really think like like

themes and fads. So I think Janice this year they've seen a lot of money into v n l A, which is the their bond e TF. I think it really speaks to when an issuer goes against who they are, and I don't think they you find a lot of success doing that. I think you kind of have to stick to your d n A, what you're good at,

when you're comfortable with. And I think Janice this year closing their wild NC seventeen products as well as these wacky themes, knows that they probably had a conversation of like who they want to be, and they're like, let's just be us, and I think that will happen more

and more. Janice this past in October, UH launched a CLO Collateralized Loan Obligation et F J and then triple a. Um, so you know, piggybacking off of what you said with the v n L A product that they're focuses more within fixed income with their lineup and using some of their in house capabilities. So yes, we're certainly seeing asset managers refocus their priorities like we saw with global Ax earlier. It's frustrating though, because the themes and the crazy stuff

gets a lot of the press attention. You know, Um, the short duration BONDYTF is just you know, the thirty six version, you know, one of them. It just puts you to sleep. But if that's who you are, I think that these firms are going to continue to be who they are, especially the new ones coming in with active, non transparent ETFs and such. Fixed income also viewed as a growth opportunity by most of the industry too. So well, I think on the topic of of these funds closing,

I think it really is. It seems like Eric had had a good point about a lot of them are closing kind of early, and that when I was looking at the list of funds that had closed this year, Um, there's a good portion that had launched only and so you know, maybe not quite giving them a chance. Um. And then I also think sort of the wild card, especially this year is the robin Hood crowd and kind of what products they could launch or could latch onto.

And you know who can predict that almost So it's um, I think that's a big factor this year that's sort of thrown into the mix. Yeah, that's a good point, Claire. And you know, I believe the record holder for the shortest lifespan ever was about six months, um the Trade War ETF. Remember that came out to a lot of press attention. It launched in June, closed by Christmas. Um. So I'm you know, it's possible we'll see something with a shorter lifespan than that, But that is really short.

I mean, this thing only gave itself a couple of months. Um. So yeah, I don't know, it would be interesting to see if we see more of that. Yeah. And to me, that seems like that must point to a change in issue or strategy. I mean, I can't imagine it just you know, didn't get enough demand within six months. It definitely seems like, you know, you would I wanted to have more of a chance to to you know, come

to life By the way, remember the trade war. It does seem like a lifetime ago that that was really relevant. I've gotta say this is not to self why you don't want to launch ant F based on a news cycle. I think Todd, we brought up robin Hood a second ago. Are there e t f s that either the robin Hood crowd to help drive out of existence that that stood out to you, or that we're calm calm pounded

by their interest in various fads, I'll call them. Sure, So we don't we don't think that, you know, the trading crowd is actually driving products out, they're actually keeping some of the products afloat. Uh So a product like J E. T S that I touched on earlier found

investor interest through this more retail trading audience. I think these more tactical and thematic and higher risk by reward products likely had a chance to succeed, and so we probably still have some of these leverage and inverse products that are hanging on because of a trading crowd. It's these, you know, products that they really just don't that aren't performing well, that fit into a niche that makes sense to that audience that just had a challenge, and particularly

international investing products. You know, US retail investors just don't really want to touch a narrowly focused you know, Japan or or single country product. Okay, so we've talked about some issuers Janice for instance, Investco who called more than anybody else who's not contributing to the graveyard Todd. Yeah. I mean Vanguard and Schwab are the number two and and number five largest et F providers. They perennially don't cut. I don't think Vanguard or Swab has actually cut any

of their et F s. Certainly Vanguard hasn't. They obviously have more assets in in a concentrated number of products, but they're more prudent in their overall strategy. So I think that's logical that we haven't seen them this year or in prior years. Um. So those are two that come to mind. You know, we saw Wisdom Tree that that made some cuts. We saw DWS, we saw Global

X that made some cuts. Just rounding out the rest of the top ten that I can think of, and then you know, JP Morgan made a couple of them. And you know, Eric, I think it was something you wanted to touch on, you know, JP Morgan. That's relatively new to the e t F market. You know, cut not their cheap data products and not their smart beta products.

Put something in more of the alternative world. Yeah, this is a space, the alternative world where you take a hedge fund strategy like long short um or UH multi strategy. I think they had an event driven and you try to democratize it in an e t F. When they launched these, the JP Morgan, head of et F said, we want to democratize hedge funds. This has been said over and over, like every three years, and it just can't happen. My theory is UH beta it works too well.

In other words, just investing in the SNP is just too good. Nobody needs alts. Why would you need that when the market is just so on fire bonds and stocks And the other thing is I think they're pretty pricey. I think the hedge fund category, I would like to see a vanguard come in and vanguard it with like a twenty bit hedge fund e t F or a rock star manager like a Cliff ast Nous launched like an a K a q R version or e t

F version of his fund. I think that could Jack up or beta just stops working and people all of a sudden look for alternatives but that category, and no one has to be able to crack the code on that really in ten fifteen years, and including JP Morgan with all their might, power and pocketbook. Well, I think it's interesting you talk about how they're trying to democratize it for the masses, because I think it points to the fact that having a narrative in terms of these

strategies and these products is really important now. And you know that narrative obviously wasn't didn't work out that well, but I think you know, we've seen a huge growth in thematic funds this year that kind of have that narrative. So I think as the market becomes more crowded and as it's harder to you know, have these funds to be successful, what kind of narrative you're pushing out as

you launch can really make or break you. Speaking of narratives, Eric, there's another ticker on your list here, H, Y and D that was almost built for an era that never came. Can you talk more about what happened with that one? Yeah, I'm I'm thinking of calling this type of situation the waiting for godot problem, which is when you you you think this thing is going to happen, and it just

never does. So there was a whole bunch of ets lunch called rate hedge dtfs, and they were designed to do well when rates rose because everyone was like, oh, rates are definitely gonna rise again, right they go up? They couldn't. Right, well, they did, and they kept going lower and lower. Remember how many articles todd do you think there have been with how to play et s

for rising rates? But they never went up. So h Y and D was one of the Wisdom Tree closed this year, and there's been a couple of rate hedge dts that have closed and their moment just never came. And I'm gonna throw this out there to you guys just to get some controversy going. I think we're gonna see a bunch of E S G T s closed the next couple of years too. I don't that moment just isn't gonna come. I mean, the fetish said they're

there on hold for the foreseeable future. So you know, I know E W S and pro Shares have some of these rate hedged products and and they've closed other products. This year and in prior years, so it's it's conceivable that the products are have a short lifespan as well. There's limited assets in them where their right reasons, they've been performing poorly in the latest environment, there's just more

products to be cut. Did you mention E s G E T S. Yeah, I'm basically saying that, maybe not to the extent because there is some assets in E s G. But the product per asset level is through the roof. There's just so much of a supply products and it looks like everybody's not slowing down anytime soon. I bet E s G in three or four years and we all meet up again on Halloween, we're E s G is gonna make up like a third of

the graveyard. Yeah, I totally agree. I think unless like your black Rock, Um, you know, there's so many assets in just a couple of those funds, and I think that, um yeah, there's so many products launching, it seems like sort of a fad um they can all gather as much money. And I think it also depends on what's under the hood in the E s G. You know, whether it's just you know, companies that don't have really bad things going on, or if it's like renewable or

clean energy. There's very much a differentiation between that. I disagree. I mean e s G is the wave of the future. I think their data says that the assets are certainly

saying it. Yes, there's there's more products right now than there are assets, but it's going to be We're hearing more from advisors that are building strategies using e s G only, and we have firms that are replacing core with their e s G. There's gonna be closures, naturally, there's gonna be closures in any space, but I don't think it's going to be anywhere close to the currency hedge wave of launches and closures three years from now. I mean, I think the other wild card is what

happens with the presidential election. Um. You know, we've been reporting a lot on Robin Hood traders and some that I've talked to have said that, you know, they're going to be watching on election night, and if there's a Biden win, they may plow money into some of these e s G funds. So that's another factor. Take that, Eric, Yeah, some of ye. I think Claire has it right. There'll be a couple of E s G t s that hog up most of the assets. But I mean, there's

just way too many. And I think that UM, forget what it's called, but this polling service called it h h I sampling bias or I forget what the word was, but it's when you two when you do a survey or a poll and the person doesn't want to say their real feelings for fear of being judged by the survey person. And I just think that E s G has been inflated in the surveys because who isn't who wants to act like say, oh I'm not into E s G. This'll be like, oh, what are you bad person?

I think the whole thing has been over inflated. And the other thing is, let's say entered the energy sector starts to rebound because E s G has had a nice run where tech is beating energy, which is E s G t s are largely overweight tech underweight energy. If that changes for a couple of years and the performance lags, that's when I think the be outflows, and

that's when they're gonna be a bunch of closures. I think E s G is built on a trade which is tech beating energy and people just don't even know that. They just think, oh, it's E s G working. No, it's just that text having a nice run and energy sucks right now. But I could be wrong. We'll see. We it's all on tape now. I will say, I think there could be more of a lingering death for

some of these E s G funds. I I do agree that they'll eventually be in the graveyard, but I wonder maybe if you know, because it's such a compelling narrative, you know, we want to invest with their values, some of these issuers will kind of stick it out and let it die a slow death, sort of like Linus in the pumpkin patch, like waiting for the gray pumpkin. He's just gonna sit there and keep saying the great pumpkins coming. Uh. These E s G look advisors want.

E s G is gonna say a year after year after year, and the the advisors don't want E s G. Um. I mean, you guys are reigning on the E s G parade, but you're quite comfortable that we've got seven cannabis et fs, and we've got six video game e t f s, and we've got eight of this other upcoming category. It's crowded in a lot of places in the et F market. We're going to see closures that take place because there are going to be one and losers. But there there's there is broader demand for E s

G over some of these other subcategories. Absolutely, themes will always be on the list. They're they're just but a cannabis ETF here and there, a video game ETF here and there. What I'm saying is E s G is going to be like currency hedging, where there's like a mass culling of products where you see like ten on the list or fifteen in a year, not like one or two. But I agree with you themes, A lot of themes are spaghetti at the wall. I think there's

no doubt about it. Okay, we've come to that part of the program where we have to talk about favorite tickers. Only this time we're gonna have a little twist on it, which is, if you could resurrect one of the tickers that ended up in this year's et F graveyard, which would it be Todd? What's yours? So the direction I'll leverage products and and inverse products just always have great tickers around it, and so as a New Yorker with an accent, uh family that has accents around to talk

T A w K. It's just a great ticker. I don't know what it's going to come back as. Maybe it's a the next five G E T f uh the incarnation. Yeah. But but but everybody at home say the say the letters T A w K out loud with the best New York accent, and you can find and and Claire if you could bring something back from the grave. What what what's your ticker from this year? Easy?

It's the dogs d O G s Um. The actual fund strategy was really complicated, but the ticker I love and I'm a huge dog lover getting a puppy in January, so that would be the one for me. It was a well timed option there, Um and Eric, how about how about for you? I'm gonna stick with what I mean.

I like directions to the one that I was drawn to for the ten years that it was out or whatever is gas X to me, this just seems because it was always the top of the bottom performer because it's a natural gas leverage three times and I just always thought of like the CBS brand of pepto bismol that you go, you know, by after you've had like too much McDonald's or something. I don't know why that just gas X just sounds like generic pepto and I

just always like that. A portion of Trillion just sponsored by Alright, Todd Claire. Thank you both for joining us a Tralians, Thank you, thanks for having us, Thanks for listening to Trillions until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcast, Spotify, and wherever else you like to listen. We'd love to hear from you. We're on Twitter, I'm at Joel Webber Show,

He's at Eric Falcunus. You can find Claire balancing at c f B Underscore eight ten and Todd at Todd c f r A. This episode of Brillions was produced by Magnus Hendrickson. Francesco Levie is the head of Bloomberg Podcast. Bye