UBS Asset Management is the latest fund manager to close down sub-scale exchange traded funds, announcing last week that it will terminate six funds and may continue to manage three others as unlisted funds.
Its move follows the closure of a number of BlackRock Investment Management iShares ETFs over the past couple of years.
UBS is getting out of the ETF market altogether. It will terminate six funds: UBS IQ Cash ETF; UBS IQ Morningstar Australia Dividend Yield ETF; UBS IQ Morningstar Australia Quality ETF; UBS IQ MSCI Europe Ethical ETF; UBS IQ MSCI Japan Ethical; and UBS IQ MSCI USA Ethical ETF.
Investors will be able to trade their ETF holdings until May 11, when the ASX will stop quoting them.
UBS Asset Management says the final distribution will be at net asset value.
UBS says: “In respect of each fund, UBS considers that the fund is not, and is not likley to become, viable as an ASX quoted exchange traded fund. This is primarily due to insufficient scale, leading to costs that are disproportionately high as a percentage of the net asset vaue of each fund.”
UBS may convert three funds to unlisted funds. They are: UBS IQ MSCI Asia APEX 50 Ethical ETF; UBS IQ MSCI Australia Ethical ETF; and UBS IQ MSCI World ex Australia Ethical ETF.
The fund manager says: “UBS considers that each fund would be viable as an unquoted wholesale fund, subject to the acceptance threshold being met.”
According to the ASX, UBS’s nine ETFs had a total of $300 million of funds under management at the end of February.
A lesson for investors is to choose ETFs that are big enough to remain on the market long term.
In February BlackRock terminated the iShares MSCI Taiwan ETF. It closed five iShares ETFs in 2018, including Singapore, Hong Kong and BRIC equity index funds.
The funds it has closed have all been small. The five funds it closed in 2018 had between $10 million and $77 million of funds under management, while the MSCI Taiwan ETF has $5.6 million
According to the ASX, BlackRock has 24 iShares ETFs, with a total of $15.5 billion under management – making it the second biggest ETF issuer in the local market.
BlackRock says it will bear all costs associated with the termination, other than normal operating expenses, such as transaction costs.
Funds researcher Zenith Investment Partners issued a report saying that up to half of the ETFs listed on the ASX may be too small to be viable.
Zenith says that while the local ETF industry has grown strongly, it is dominated by a small number of large funds. The top 10 ETFs by size make up close to 50 per cent of the sector’s market capitalisation and the top 25 account for 70 per cent of total market cap.
“While the exact level of funds under management at which an ETF is profitable depends on a variety of factors around the asset class in which the ETF operates, as well as the manager’s infrastructure, scale of the product suite and fee level, most ETFs should be profitable at between $50 million and $100 million,” Zenith says.