XME SPDR S&P Metals and Mining

2011 has been a great year for the ETF industry as assets rose above $1 trillion for the first time and literally hundreds of products hit the market. These new funds ran the gambit of asset classes with ETFs targeting everything from German bonds to small cap Hong Kong stocks debuting over the course of the year. Yet, while the period has been generally positive, some sponsors have decided that the competitive pressures, combined with the low amount of assets in certain products, could make shutting down a few funds in the company’s best interest.

This seems to be the case for ALPS as the company announced that the Jefferies TR/ J CRB Global Agriculture Equity Index Fund (CRBA) and the Jefferies TR/ J CRB Global Industrial Metals Equity Index Fund (CRBI) would close to new investors before the year is out. The two funds launched on October 27^th of 2009 targeting equity sections of the commodity world and looked to offer investors a different way to play these important parts of the market. Both products had a heavy focus on international securities as CRBI had close to 80% of its assets in foreign companies while CRBA put close to two-thirds of its assets in ex-US companies (read Is USCI The Best Commodity ETF?).

Despite this international focus and the targeted exposure offered by these funds, CRBA and CRBI failed to attract a meaningful amount of assets in their lives which spanned a little more than two years.  CRBA had just under $9 million in assets and was only trading about 2,900 shares a day, while CRBI was even less popular having amassed just under $3.2 million in assets trading just 1,400 shares a day. Given that the commodity-focused equity corner of the world was and continues to be extremely popular among investors, the sponsors felt that they couldn’t continue to wait for these two funds to gain traction. This is especially true given that MOO and PAGG, which compete with CRBA, have more than $5.6 billion in assets under management, while XME, which competes with CRBI, has a lead of nearly $860 million in terms of AUM (see Top Three Precious Metal Mining ETFs).

Nuts and bolts of the ETF closures

The funds are scheduled to have their final day of trading on Thursday December 22, 2011 on the NYSE Arca platform. Through the following five days, the funds will be in the process of closing down and will then liquidate the portfolios. During this period, the cash holdings of the fund will likely surge which may make the funds fail to track their underlying benchmarks. Any person who still has shares as of December 28^th will receive a cash distribution equal to the NAV of the shares at that date. Investors should note that those who receive this distribution will not incur transaction fees but parts of the distribution may be classified as ordinary income dividends or capital gains distributions, potentially creating a tax liability for some investors (read Three Best Gold ETFs).

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