Lives of ETFs Get Shorter as More Funds Shutter Than Ever Before

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Some ETFs are going out of style faster than fidget spinners in 2017.

The average lifespan of a liquidated ETF this year is just 1.75 years, far shorter than 3.5 last year and roughly 4.7 in 2024, according to Bloomberg. Wall Street’s impatience comes as more ETFs are hitting the market and shutting down than ever before: 1,000 active ETFs launched last year, skyrocketing from just 584 in 2024. A record 146 active ETFs also closed up shop, per Morningstar data.

“The industry is still in growth mode now, but it feels like it’s getting more business-oriented,” said Eric Balchunas, an ETF analyst at Bloomberg Intelligence.

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Short-term, trading-oriented active ETFs — such as those that use leverage or offer exposure to a very specific corner of the market or a single stock — have exploded in popularity of late, but assets typically aren’t sticky. Only three of those strategies garnered more than $1 billion in assets at the end of the year, and only 40% secured more than $25 million, meaning the area could see more closures, Morningstar reported.

However, closures aren’t something firms should be ashamed of, says Aga Kuplinska, a senior vice president at Tidal Financial Group, a third-party service provider that helps issuers build and manage their ETFs. “When you decide to close, it almost feels like a failure, but it’s really not,” Kuplinska said. “It’s just a way to make sure that capital is put to the most efficient use.”

Still, it’s far from a goal. Kuplinska outlined some of the steps Tidal takes when working with new clients to launch an ETF:

• When a client brings the firm an idea, one of the first things it does is check whether the idea has been developed before, and if so, whether there’s a way to differentiate the new product. “In the ETF market ecosystem … the majority of flows go to the first product,” Kuplinska said. “So we don’t recommend anyone launching a very similar product. If there’s 11 gold funds out there, why would we encourage someone to launch a 12th?”

• They also adopt metrics that the fund should meet to be considered successful, such as how much AUM it has to attract to support itself, and establish a marketing plan.

Then if the fund reaches the 12-, 18- or 24-month mark and it’s still not breaking even, and there aren’t any economic indicators showing that the environment will change, it may be time to consider closure, Kuplinska added.

Extra, Extra: Issuers are typically proactive about closing funds since it hurts their business to run an ETF that isn’t profitable, Kuplinska said. But doing so does require proper planning and a public relations plan since it can attract headlines (guilty).

*Emile Hallez contributed to this report.

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