IndexIQ To Shutter South Korea Fund
July 09, 2012
IndexIQ, the Rye Brook, N.Y.-based exchange-traded fund firm known for its pioneering hedge fund replication strategies, will close its IQ South Korea Small Cap ETF (NYSEArca: SKOR), after the fund failed to gather significant assets since its launch a bit more than two years ago.
It’s the fourth small-cap fund IndexIQ has shuttered in the past year, as the concept of high-beta funds focused on Asia don't seem to be getting significant traction with investors. SKOR has about $6 million in assets. Last year it also closed small-cap funds focused on Hong Kong, Taiwan and Japan. In sum, all the funds were launched just as China was slowing and not long before the power change in North Korea—two big variables that probably helped give investors pause.
SKOR’s end will mark the 19th ETF shuttering this year, meaning that fund closings are on pace to top last year’s 30 shutdowns, but are running behind pace to top the 49 closings in 2010, according to information posted on IndexUniverse’s “ETF Watch.” Overall, analysts, such as McKinsey & Co., expect the pace of ETF closings to increase as the industry matures and grows more competitive.
“The Trust’s Board of Trustees determined that closing and liquidating the Fund was in the best interests of the Fund and the Fund’s shareholders,” the company said in a supplement to the fund’s prospectus it filed with the Securities and Exchange Commission of Friday, July 6.
The lawyerly language was no doubt a reference to the fund’s assets. While estimates can vary, a fund with less than $100 million in assets is considered less than secure and at possible risk for shutdown.
Still, SKOR had no direct competitors, meaning that its closure risk under the methodology used by IndexUniverse’s ETF Analytics unit was relatively low, its low assets notwithstanding.
Mechanics Of The Shuttering
In the regulatory paperwork, the company said that the South Korea fund will close to new investors and stop trading on the New York Stock Exchange’s electronic platform Arca on Aug. 17.
The fund will be liquidated on or before Aug. 22 or at another date specified by the fund’s trust, the prospectus supplement said.
Shareholders of record remaining on Aug. 22 will receive cash at the net asset value of their shares as of that date, including any capital gains and dividends as of such date. Shareholders won’t face transaction fees in connection with the liquidation.
IndexIQ has two remaining small-cap funds, the $24.6 million IQ Canada Small Cap ETF NYSEArca: CNDA) and the $13.7 million IQ Australia Small Cap ETF (NYSEArca: KROO), according to data compiled by IndexUniverse.