Does The Restaurant ETF Closure Signal Trouble For Other Niche ETFs?

Written by David Dierking

I’ve been a critic of the trend of launching increasingly narrow-focused ETFs for…[some time]. While it’s nice having a product available that gives you access to such a narrow slice of the market, it feels more like a gimmick than actual investing strategy. Lately, companies have been more willing than before to pull the plug on funds that have received little investor interest. The ETFs that could be destined to [go that way]…are relatively easy to pick out. I have gone down the list of recent narrowly-focused fund launches and found five names that I think could ultimately be liquidated if things don’t change soon.

On December 9th, ETF Managers Group announced that it was closing the Restaurant ETF (BITE). The fund launched with a fair amount of interest in October 2015 as the first ETF to focus solely on the restaurant industry. It was thought that the trend of steadily increasing household spending on eating out would result in strong performance for restaurant stocks attracting investor dollars. Investors never became interested in the product though. The fund will shutter later this year with only around $1.5 million in total assets.

…For every PureFunds Cybersecurity ETF (HACK), there are a dozen funds like the Restaurant ETF that never catch on…Even the Cybersecurity ETF, one of the most successful ETF launches lately, has seen its assets under management drop significantly from its peak over a year ago.

The closure of the Restaurant ETF along with other recent niche ETF closures such as the CrowdInvest Wisdom ETF (WIZE), a fund that crowdsourced its investment ideas and closed earlier this year after just five short months, could be sending a signal that companies may be more willing than before to pull the plug on funds that have received little investor interest.

The ETFs that could be destined to experience a similar fate are relatively easy to pick out. They probably have less than $10 million in total assets and are very thinly traded. I went down the list of recent narrowly-focused fund launches and found five names that I think could ultimately be liquidated if things don’t change soon.