One of the big investing trends of this year has been the outflow of assets in equity mutual funds, much of which has happened in response to the rise of exchange-traded funds. But certain aspects of the ETF industry have been challenged as well: The Financial Times has reported that there are literally hundreds of ETFs on the market that lack the assets to remain financially viable.
And the numbers are getting worse. FT says that at the end of 2010, roughly 14.5 percent of all ETFs that had been around for six months had less than $25 million in assets or had traded less than $100,000 per day. Now that number is up to 27 percent. Those funds falling below the viability threshold draw in just $35,000 a year in revenue - hardly enough to make it worth keeping them going.
What we may be seeing is that the ETF market has been over-flooded with new products, with more than 1400 total funds available now. That's a big reason why asset managers such as Russell Investments have decided to close up their 25 ETFs and exit the business.
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