In a recent Wall Street Journal article, “What to Do When Your Fancy ETF Goes R.I.P.”, Jason Zweig offers insight about the possibility of future ETF liquidations.
There are currently 369 exchange traded funds with less than $50 million in assets. Generally, if a fund is smaller than $50 million, it is losing money. This means that approximately half of all ETFs are too small to survive.
To close, a fund can either liquidate and refund investors or it can merge with another ETF. So far, 25 ETFs have closed this year.
To avoid owning a fund that may close, it is advised to invest in an exchange traded fund with over $50 million in assets. If you do happen to own an ETF that is shutting down, you may want to keep the fund until it is redeemed – this may give you the rare opportunity to cash out without paying brokerage commissions.
Do your homework before making any investment decisions. Use the ETF Directory at ETF MarketPro as a starting point.