Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

1st Quarter | 2022

Market insights and analysis


Updates on how dynamic, risk-managed investment solutions are performing in the current market environment.


The following criteria is used (since January 2011) to objectively determine the members of ETF Deathwatch each month based on the most recent month-end data:

  1. Products (ETFs and ETNs) less than six months of age receive an automatic exclusion from consideration (incubation period).
  2. Products with more than $25 million AUM in either of the past two months get a free pass (they will be not be added to the list and will removed if currently on the list).
  3. Products will be added to ETF Deathwatch list if:  Average daily dollar volume for a given month is less than $100,000 for three consecutive months -or- AUM is below $5 million for three consecutive months.
  4. Products will be removed from ETF Deathwatch if:  Average daily dollar volume for a given month is greater than $100,000 for three consecutive months -and- AUM is greater than $5 million for three consecutive months.

The reason for the six-month age exclusion is to provide an incubation period in which new products have a chance to establish themselves.  Even the most successful funds sometimes need a few of months to gain traction.  Based on data I’ve collected, most sponsors will give a new product at least six to nine months before pulling the plug, even if it’s an obvious dud. The reason for requiring three consecutive months of trading activity and AUM data to cause a change is to reduce the volatility of additions and subtractions to the list.  This helps filter out short-term spikes and dips that last only a month or two. ETPs generate revenue for their sponsors primarily from the fees assessed as a percentage of assets under management (“AUM”).  The level of assets required for a given product to be making a profit for its sponsor will be a function of the expense ratio, the number of ETPs in the family, and many other factors.  Estimates for profitability range from $25 million to $100 million.  The ETF Deathwatch criteria generously uses the low end estimate. Dollar volume is critical because it provides “level of interest” data on a real time basis.  If there are no trades, then there is clearly no interest, and it is easy to draw the conclusion that assets are also not flowing in.  Some products have extremely high dollar volume and very low AUM because they are used mainly as day-trading vehicles.  All of the creation and redemption activity has the potential to generate some revenues for sponsors because fees are charged for this activity.  To my knowledge, this is not viewed as a profit center for these firms.  Instead, the fees assessed are typically designed to cover the associated costs.

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