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Cut-throat competition in the fast-growing market for tradable index-tracking funds is making it harder for sponsors to cover costs and forcing some to close funds. As the number of funds increases, assets are being spread more thinly across products, forcing sponsors to lower fees further in order to compete.
Exchange-traded funds and notes, which track returns on indices such as the S&P 500, have seen US assets more than double to $1.2 trillion since 2008. Retail and institutional investors have been attracted by low fees and the option to withdraw money instantaneously. However, research found that about 27 per cent of all US-listed exchange-traded products open longer than six months are economically unviable. That is up from 14.5 per cent at the end of 2010, according to Invest with an Edge, an industry data tracker.
The 377 investment products in question have not had more than $25 million in assets in the last two months or consistently traded more than $100,000 in shares a day. The average fund on the list generates just $35,000 a year in revenue.
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