When FocusShares decided to shutter its four existing tactical exchange-traded funds this week, it was not a signal that the company was bailing out of the ETF business, according to the company.

FocusShares Chief Executive Erik Liik said in an interview Wednesday, a day after announcing the shutterings, that executives were discarding the tactical ETF approach. That strategy included niche plays on homebuilding and Wal-Mart supplier companies through index ETFs.

FocusShares says it's making the moves so it can devote its resources to the introduction of what Liik called "solutions-based" ETFs.

FocusShares has a series of tactical ETFs, in addition to the four being liquidated on Oct. 20, that have been in registration with the Securities and Exchange Commission.

However, Liik said those will not launch any time during the next six to 12 months, if ever, as the company transitions to what it believes will be a more scalable ETF business.

The existing tactical ETFs and those in registration had been designed for active traders, who were early adopters of the ETF structure. Liik says those active traders have not made enough use of the company's tactical funds.

The funds have only attracted $17 million in assets since their launch approximately nine months ago, and had net outflows in September of $5 million (see related story).

Tactical Plays No Guarantee 

In today's market, a niche firm cannot hang around waiting for assets to amass over the long term, Liik says. Furthermore, during a market in which conditions may be getting even worse before a recovery, there is no reason to believe that tactical plays on the U.S. housing market or U.S. consumer spending will generate significant short-term interest, certainly not enough interest to keep the tactical ETFs afloat until a better part of the business cycle.

The four shuttered ETFs also include plays on "sin" industries and homeland security.

Instead, FocusShares is preparing a filing for late-November of a suite of solutions-based ETFs designed for the retail and advisor marketplaces; to begin with, approximately a half dozen new funds.

In effect, FocusShares is not only changing its product approach from tactical strategies to solutions-based strategies, buts its distribution focus from the trader universe to the advisor and retail investor.

Liik says he hopes the new suite of ETFs can launch in the first quarter of 2009.

He was reluctant to provide details on the solutions-based ETFs, since they have not been registered yet.

But he says the idea is to shift from the idea of offering ETFs as an investment tool to the idea of offering ETFs as an investment solution, without disintermediating the advisor.

Liik says most ETFs today fit into the "tools" definition, and are used as individual tools in aggregate. Therefore, the company hopes to carve out a niche providing a more comprehensive approach to advisors and investors.

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