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Investments - Strategies

Beware of ‘Zombie ETFs’

December 30, 2019

[Zombies /]


by Howard Haykin



If you’re an investor who’s never heard of Exchange Traded Funds, or ETFs, then you’re probably someone who’s been living under a rock or been letting someone else do all your investing. Bottom line is ETFs have taken Wall Street by storm.
Simply stated, ETFs are investment funds that trade on stock exchanges, much like stocks. They hold baskets of assets like stocks, commodities or bonds, charge low annual fees, and offer stable growth. These qualities make them particularly attractive to beginning investors. [See the Motley Fool article, What Is an ETF?]



So, what about “Zombie ETFs?”  This unusual term – one which I had not heard until now - applies to funds that are not likely to survive long term. It’s common for Zombie ETFs to close down because they never reach a sustainable size of at least $100 million. Over the last 5 years (according to Wealth Management Magazine):


  • 24% of all 1,662 ETFs that existed in December 2014 have since closed down.
  • The ETFs that closed had median assets of $10 million as of December 2014.
  • Nearly all closed ETFs (89%) never crossed the $100 million mark.  



INVESTOR TAKE AWAYS.    If you work with a financial adviser, rest easy. You’ll probably never invest in a Zombie ETF because most brokerage firms don’t allow their advisors to buy ‘small ETFs’ for customers. If, however, you’re someone who takes an independent approach to investing, look before buying an ETF to make sure it’s sufficiently large in size. And, if you’re thinking about investing in a highly specially international fund, bear in mind that many of these ETF-types also shut down.


Better yet, keep it simple and go with a top performer like the Vanguard S&P 500 ETF (symbol ‘VOO’).