Some exchange-traded products linked to commodity prices experienced blowback with the collapse of oil prices in April. Oil tankers off the Ports of Long Beach and Los Angeles.
Photo: Mario Tama/Getty ImagesAsset managers have closed more exchange-traded products than they have launched this year, a sign of how market gyrations have accelerated an industry shakeout.
So far this year, 188 exchange-traded products, including funds and notes, have been shut down, the most on record, according to FactSet. The closures occurred at big and small asset managers alike, including BlackRock Inc., BLK 1.27% which manages the popular suite of iShares ETFs; JPMorgan Chase & Co.; Invesco Ltd. IVZ 4.54% ; ProShares and Direxion.
Meanwhile, launches have been sparse, with just 161 new offerings coming to market, the lowest number since 2013.
Two factors appear to be driving the shakeout: an oversaturated industry and the unprecedented volatility that has rocked markets this year.
“Some of the larger firms like [BlackRock’s] iShares and Invesco have a broad suite of products. And it’s common for them to prune their lineup based on where the money hasn’t gone into,” said Todd Rosenbluth, head of ETF and mutual-fund research at CFRA. “Some leveraged and inverse exchange-traded products have also been volatile.”
Asset managers, including Invesco and BlackRock, have been trimming their exchange-traded product lineups in recent years, dumping funds that fail to attract enough assets to support themselves. That threshold is typically at least $50 million.
Invesco, for example, closed more than three dozen ETFs earlier this year as part of a streamlining following the purchases of OppenheimerFunds in May 2019 and Guggenheim Investments’ ETF business in 2018.
BlackRock closed eight funds so far this year but also launched 26 new products, including seven funds focused on socially responsible investing.
“We are continually evaluating our lineup of ETFs to address the needs of our clients,” a BlackRock spokeswoman said.
Since their 1992 introduction, ETFs have evolved from simple funds that offer exposure to all the stocks in the S&P 500 into more complex strategies that focus on themes or bundle stocks, bonds and other assets. There are about 2,000 exchange-traded products listed in the U.S., and the industry has grown to $4 trillion.
Asset managers have also been contending with a historic level of volatility brought on by the coronavirus pandemic. It has wreaked havoc on some exchange-traded notes, particularly those that use leverage to amplify the moves of the indexes they follow. The S&P 500 slid more than 30% from its February peak to its March low, only to rebound more than 50% since then.
The blowback was even worse for some exchange-traded products linked to commodity prices. Oil prices collapsed in April, as investors factored in lowered demand for travel and factories, briefly pushing the contract for the following month’s delivery below $0 for the first time ever.
ETNs don’t look or trade much differently than mutual funds or exchange-traded funds. However, unlike ETFs, ETNs are debt instruments and don’t own the assets they track. And the products can be shut down if their value falls below a certain level.
Of the 188 closures, 30% were ETNs, according to FactSet. Another 38% of those were leveraged ETNs.
“A triple- or double-leveraged oil [fund] was a doomed strategy,” Mr. Rosenbluth said. “If you were double long oil, that was a horrible investment.”
Elisabeth Kashner, a director of ETF research and analytics at FactSet, added that many banks and asset managers decided to pare back their risk exposure by closing funds. Leveraged or geared funds, which must rebalance daily, also faced challenges in the swaps markets for the most volatile underlying assets, she added.
The ProShares UltraPro 3x Crude Oil ETF, for example, amplified the moves of the Bloomberg WTI Crude Oil Subindex by three times, using leverage. A 1% move up or down in the index equated to a 3% move for the product, which proved disastrous for some investors.
The fund last traded at 22 cents a share by the time it closed in March, down sharply from just over $21 a share in January.
ProShares didn’t respond to a request for comment through a spokesman.
Credit Suisse also closed a number of exchange-traded products this year, including several leveraged ETNs linked to natural gas, gold and silver.
The bank said in a June statement announcing the closures that the move was to “better align its product suite with its broader strategic growth plans.”
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
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