This month, two ETF providers in the US announced they were closing shop. First up was FocusShares (associated with the online brokerage Scottrade), who will shutter its entire roster of 15 ETFs. Then on August 17—the same day the FocusShares ETFs ceased trading—Russell ETFs declared it will close all of its passively managed funds in October.
ETF closures are not particularly newsworthy in the US: some 48 other funds have called it quits since the beginning of 2011, and there will no doubt be many more as the market evolves. But I think these latest closures are much more significant, and here’s why: these were genuinely good products.
As the ETF market has exploded in the last six or seven years, all manner of exotic, narrowly focused products have sprouted up like weeds. Not only is it unsurprising that many failed to attract investor interest, it’s heartening. It was hard to shed a tear over the demise of the HealthShares family of funds that included ETFs specializing in Dermatology & Wound Care, Metabolic-Endocrine Disorders and Autoimmune-Inflammation. Is it any wonder they pulled the plug on these terminally bad ideas?