By Christiana Sciaudone
Investing.com -- More ETFs have closed than opened for the first time ever, according to data compiled by Toroso Investments.
Through June 29, 218 exchange traded funds were opened in 2020, compared to 231 that closed, bringing Toroso Investments' KPI for closed versus opened ETFs below one for the past 12 months. That number has forever been above one.
The problem? There are too many ETFs that are too similar, and fee compression is getting to them, according to Dan Weiskopf, a portfolio manager at Toroso whose Twitter handle is @ETFProfessor.
“It’s a sad reality that it’s harder to launch a product today than it was five years ago,” Weiskopf said in a video interview this week. “With fee compression comes a higher probability of failure. You need to get that asset base to get to break-even.”
ETFs offer investors the opportunity to buy a basket of stocks rather than an individual stock, with lower risk, but part of the problem right now is that investors are saying they don’t want to pay a lot for access to returns when the S&P 500 is compounding easily at 10%.
“My answer to that is markets are not going to compound at 10% forever,” Weiskopf said.
As a result, he expects the KPI ratio to bounce back above one in the coming weeks and months. Weiskopf also believes the industry is ripe for consolidation, with some firms not fully committed to their ETF platforms.
The ETF market is currently at $4.3 trillion of assets under management. Weiskopf thinks that will rise to $4.5 trillion by year’s end, and he said there are estimates that assets under management will reach between $30 trillion and $50 trillion by 2030.