There are many popular ASX exchange-traded funds (ETFs) on our markets that are run by provider BetaShares.
The BetaShares Nasdaq 100 ETF (ASX: NDQ) is one popular example. However, many ASX investors have funds ranging from the BetaShares Global Cybersecurity ETF (ASX: HACK) to the BetaShares Australia 200 ETF (ASX: A200) as well.
But if you're a fan of the ASX ETFs provided by Betashares, this might be difficult news to read.
Yesterday, Betashares announced that it would be closing no fewer than nine of its exchange-traded fund products. In all cases, investors have until mid to late January or early February to decide whether to sell out of their existing units. Otherwise, they will be redeemed for cash when the funds are formally wound up.
ETF closures are quite rare events on the ASX. With the passive ETF industry receiving seemingly endless additional inflows every year, it's far more common to see new funds open up rather than existing ones closed down.
Nine ETFs: Rule them out in 2024
Yet not all ETFs have proven to be a hit with ASX investors, and as such, many are uneconomical to run long term. This seems to be the fate that has befallen nine Betashares ETFs.
Here are the nine funds Betashares has announced will shut up shop early next year:
- BetaShares Online Retail and E-Commerce ETF (ASX: IBUY)
- BetaShares Metaverse ETF (ASX: MTAV)
- BetaShares Future of Payments ETF (ASX: IPAY)
- BetaShares Future of Food ETF (ASX: IEAT)
- BetaShares Solar ETF (ASX: TANN)
- BetaShares Digital Health and Telemedicine ETF (ASX: EDOC)
- BetaShares Martin Currie Equity Income Fund (ASX: EINC)
- BetaShares Martin Currie Emerging Markets Fund (ASX: EMMG)
- BetaShares Martin Currie Real Income Fund (ASX: RINC)
It seems that the reason for all nine of these ETFs' impending closure is the same: money. Here's how Betashares has justified its decision to wind up these funds:
The decision to close the Fund recognises that, since its launch, it has not achieved sufficient scale to be sustainable and is not likely to do so.
Why are these nine ETFs leaving the ASX?
Funds management is a business that is all about scale. Investors are usually unwilling to entrust their cash to an ETF if it charges a high management fee, say north of 1%, for argument's sake. That means a fund with $10 million in assets under management will only produce an income stream worth $50,000 a year if it has a fee of 0.5%.
As such, funds have to hit tens of millions of dollars in assets under management for them to be considered a viable product.
Let's take the Betashares Future of Food ETF as a case study. Right now, Betashares tells us that this particular fund has just $2.32 million in assets under management. Since IEAT charges a fee of 0.67%, Betashares would be making approximately $15,544 in annual revenues from this fund right now
So you can see why it's probably not worth the providers' while to keep IEAT's doors open, even if it has returned a respectable 16.5% over the 12 months to 29 November.
Let's see what Betashares' next ETFs look like.
