One of the frustrating aspects of ETF investing is seeing a fund you own liquidated. The biggest disadvantage when this happens is the forced sale may result in an unexpected tax bill for any capital gains. But a second problem is that once you’ve got the cash from the sale or liquidation, you now have to decide how to redeploy those funds.
State Street recently announced the closure of 19 of its SPDR ETFs. One is a fixed income ETF and two are currency-hedged vehicles that simply held another SPDR ETF, but the remaining 16 are “plain vanilla” equity funds. Any investors who haven’t already sold should receive proceeds from the funds’ liquidation in their brokerage accounts on or around August 1, 2017, according to the press release.
Replacing these ETFs will be easier for some than for others. We used our Overlap Tool to find the closest match for each of the 16 plain vanilla ETFs that have closed. As you can see from Table 1, the percentage of overlap between the closed SPDR ETF and its closest match ranges from a high of 78% for QESP’s best match, the iShares MSCI Spain ETF (EWA), to just 13% for IPK’s closest match—if you can even call it that—the Deutsche X-Trackers MSCI Japan Hedged ETF (DBJP).
Another downside to this latest group of fund closures is that with only two exceptions the closest match is more expensive than the SPDR fund it replaces. It is somewhat surprising to us that many of these funds didn’t make it commercially, given their lower costs and relative uniqueness (low overlap) in many cases.
Take the SPDR S&P International sector funds. These would seem to be the ideal foreign compliment to State Street’s domestic “Sector SPDR” family of ETFs, the proverbial 800 lb. gorillas of the category. Yet the iShares Global sector funds, which are 7 basis points more expensive and include U.S. stocks—and therefore overlap any domestic sector exposure investors already have—are far bigger in terms of assets than the SPDR funds. We chalk it up to iShares’ nearly two-year first mover advantage for these funds (launched in September 2006, versus July 2008 for the SPDR funds), or iShares’ marketing prowess, or both.
Table 1: Potential Replacements for Liquidated SPDR ETFs
|Liquidated SPDR ETF||Potential Replacement ETF|
|QESP||SPDR MSCI Spain Quality Mix||EWP||iShares MSCI Spain||78.2%||+18 bp|
|QAUS||SPDR MSCI Australia Quality Mix||EWA||iShares MSCI Australia||73.2%||+18 bp|
|GAF||SPDR S&P Emerging Middle East & Africa||EZA||iShares MSCI South Africa||70.6%||+15 bp|
|RBL||SPDR S&P Russia ETF||RSX||VanEck Vectors Russia ETF||69.8%||+3 bp|
|GML||SPDR S&P Emerging Latin America||ILF||iShares S&P Latin America 40||58.6%||0 bp|
|IRV||SPDR S&P Int’l Materials||MXI||iShares S&P Global Materials||56.7%||+7 bp|
|IPF||SPDR S&P Int’l Financial||EUFN||iShares MSCI Europe Financial Sector||53.3%||+7 bp|
|IST||SPDR S&P Int’l Telecom||IXP||iShares S&P Global Telecom||47.7%||+7 bp|
|IPN||SPDR S&P Int’l Industrials||EXI||iShares Global Industrials||44.6%||+7 bp|
|IPS||SPDR S&P Int’l Consumer Staples||KXI||iShares S&P Global Consumer Staples||43.2%||+7 bp|
|IPW||SPDR S&P Int’l Energy||IXC||iShares S&P Global Energy Sector||39.7%||+7 bp|
|IPD||SPDR S&P Int’l Consumer Discretionary||RXI||iShares S&P Global Consumer Discretionary||35.6%||+7 bp|
|IPU||SPDR S&P Int’l Utilities Sect||JXI||iShares S&P Global Utilities||35.3%||+7 bp|
|GUR||SPDR S&P Emerging Europe ETF||RBL||SPDR S&P Russia ETF||34.1%||-10 bp|
|IRY||SPDR S&P Int’l Health Care||IXJ||iShares S&P Global Healthcare||30.5%||+7 bp|
|IPK||SPDR S&P Int’l Technology||DBJP||Deutsche X-trackers MSCI Japan Hedged||13.2%||+5 bp|
Note: Cost Difference is the expense ratio of the replacement fund minus the expense ratio of the closed SPDR ETF.
Source: ETF Research Center