Global X ETFs, the New York-based provider of exchange traded funds, is liquidating 19 of its ETFs. Overall, the ETF provider manages 109 funds across a variety of strategies with nearly $42 billion in net assets, according to data from CFRA Research. The 19 ETFs that Global X is shuttering have $173 million in assets combined with the largest, the Global X MSCI Pakistan ETF, managing $33.9 million in assets.
The funds will cease trading at the end of the trading day on Feb. 16, and are expected to liquidate the following week. Investors on the liquidation date will receive a cash distribution equal to the net asset value of their shares as of that date. Global X will bear all fees and expenses in connection with the liquidation.
“Based upon the recommendation of Global X Management Company LLC, the Global X Funds' adviser, the Board of Trustees determined on January 19, 2024 that it was in the best interests of the funds and their shareholders to liquidate each of the funds. The funds represent less than 1% of the assets of Global X ETFs,” according to a press release. Global X did not respond to requests for comment.
The moves by Global X are part of a bigger trend of ETF liquidations. While new launches outpace funds shuttering, 2023 saw 244 closures, according to data from Morningstar. (In contrast there were 520 new launches in 2023.) On average, ETFs that shut down in 2023 were 5.4 years old and had average AUMs of $54 million. All of the ETFs Global X are shutting are smaller than that average with some holding as little as $2 million.
“We saw a record number of closures last year. The thing to understand is the way an ETF makes money is on fee-based revenue. It’s the AUM times its expense ratio,” said Daniel Sotiroff, a senior analyst with Morningstar Research Services. “But if you don’t have the AUM to pull in enough revenue to make up for the costs to run the ETF, it’s not profitable. It doesn’t make sense to keep them open.”
In Global X’s case, many of the ETFs it is shutting are extremely niche strategies that did not catch on with investors. For example, 10 of the ETFs are China strategies on subsectors of the market including healthcare, energy and real estate.
“They just weren’t big enough to keep open,” Sotiroff said. “A lot of them had been out there for five years or longer. They had plenty of time and nobody was biting. They were niche exposures that don’t have a lot of appeal to a broad audience.”
Sotiroff expects the trend of ETF closures to continue in 2024, with the total number of liquidations potentially surpassing 2023’s total.
“There are a lot of ETFs that don’t have a lot of AUM and have been out for a few years,” he said.
