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Although 2012 has been another banner year for the quickly growing ETF industry, nearly 100 funds have closed their doors in the 12 month period as well. This record year of ETF closures looks to continue as we wind down the final part of the year as Direxion has announced that it will be adding another three ETFs to the total number of funds shuttering operations this calendar year.
The trio combine to possess less than $15 million combined and is unlikely to make much of a dent in the firm’s total AUM picture. In fact, the company still has 44 other ETFs on the market which have an aggregate market cap of over $5.8 billion, suggesting that the firm will be just fine from a revenue perspective without the three.
Still, the decrease will greatly reduce the firm’s lineup of non-leveraged/inverse products, a market that the company has had trouble breaking into, unlike the great success it has seen in the geared ETF space. The closures will actually be reducing the total number of non-geared products from Direxion in half, down to just three products in total (read Inside the Forgotten Energy ETFs).
Direxion Shares on the advice of Rafferty Asset Management, the Trust’s advisor, cited their inability to attract assets as a key reason for the closure, stating that liquidation would be the best course of action for the firm. The winding down process will take place between January 18th and January 25th, and a final cash payment will be distributed at the end of that period, according to a press release.
The three closures include:
From an analyst’s perspective, it is somewhat disappointing to see VSPR and VLAT go to the ETF graveyard. Both funds offered up relatively unique exposure to their respective markets, and looked to help investors cut down on volatility in this uncertain market environment (see State Street debuts Unique Momentum and Value ETFs).
However, investors clearly didn’t embrace this concept, choosing to go with cheaper and more popular ETFs for their exposure. It is somewhat encouraging though to see that Direxion did choose to hang on to two similar funds in the space that also haven’t seen the most asset inflows; the Direxion All Cap Insider Sentiment Shares (KNOW - ETF report) and the Direxion S&P 500 Volatility Response Shares (VSPY - ETF report).
These two have roughly the same amount in assets as their shut down counterparts, but allow Direxion to maintain a foothold in the space in case interest surges in the near term. While I am not willing to bet on this happening, it is good to note that Direxion isn’t throwing in the towel completely on their unleveraged ETF lineup just yet (see Uncertain about the Economy? Try Market Neutral ETFs).
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