After getting outmaneuvered by rival Invesco PowerShares in the race to claim first-mover status in a potentially lucrative active bond exchange-traded funds market, the trustees of the Bear Stearns Current Yield Fund have decided to throw in the towel.

In a curt statement, the Board of Trustees of Bear Stearns Active ETF Trust says it has voted unanimously to liquidate the fund, known for its ticker on the American Stock Exchange of YYY. 

The ETF's board expects that its shares will cease trading on the AMEX on or about October 1, according to the statement.

The decision marks the 38th closing of an ETF so far in 2008. In late August, XShares Advisors LLC confirmed that it was planning to close 15 of its HealthShares exchange-traded funds. That came on the heels of  the niche ETF provider saying in late June it would shutter its seven real-estate-focused ETFs under its Adelante Shares brand name.

Claymore Securities in January decided to shut 11 of its ETFs, and in May, Ameristock Corp. gave four bond ETFs the axe.  

The rash of closings mark the first ETF liquidations since 2006, when the SPDR O-Strip (OOO) ETF was eliminated due to low assets.

Trouble From The Start

In the face of growing consolidation, the decision to close YYY hardly comes as a surprise to the industry. The ETF, which was run by Bear Stearns' asset management arm, already had endured its share of problems. Its launch was delayed several times amidst rapidly deteoriating conditions at the parent investment bank. In fact, it wasn't until midday on March 25 before the firm confirmed YYY had actually started trading earlier in the day. (See related story.)

After Bear Stearns was auctioned to J.P. Morgan, wages at rival ETF firms were made as to whether YYY would survive. Although not quite a money market, the fund didn't hold long-enough-termed issues to qualify as a short-term bond portfolio, either. Most analysts considered YYY an ultra-short bond fund, the same category that Morningstar recently eliminated due to the ravages of the ongoing credit crisis that dried up liquidity for the type of paper that such funds typically hold. 

YYY was also heavily out-marketed by PowerShares. In an aggressive public relations campaign, the ETF provider put out word that it was expecting an active bond ETF shortly and trumpeted the fact it had cleared all regulatory hurdles.

Not Enough Locomotion 

The only problem was that PowerShares hadn't set a release date. Industry insiders knew that Bear Stearns was actually further along in the process. So even though it gained first-mover status as the first active bond ETF, YYY wasn't able to gain much steam. The news that PowerShares had received a green light from the Securities and Exchange Commission was covered by every major U.S. news provider.

Adding to YYY's problems getting out of the gate with investors and efforts to seize upon its first-mover status was its parent's struggles. By the time the Invesco PowerShares Active Low Duration Portfolio (NYSEArca: PLK) began trading in mid-April, Bear Stearns was well into the process of being swallowed by J.P. Morgan. 

Although its assets haven't been readily available on Bear Stearns' Web sites, a May tally of top ETFs by IndexUniverse.com found YYY had about $50.2 million in assets. That was barely above the nearly $50.1 million it started out with and most likely represented seed money that Bear Stearns figured it needed to create enough liquidity to launch an ultra-short bond fund.

PLK isn't doing much better, gathering just $2.5 million since its debut on April 11.

No doubt much of the rather sluggish response to YYY was due to an adverse investing environment and the ongoing meltdown in credit markets. But if the economy keeps sinking, short-term bond portfolios figure to catch at least a little more momentum.

And any increase in headline shocks could actually create more opportunities for actively managed bond ETFs at a time when interest rates are still at relatively low levels. That would seem to be an opportune time for managers at the first active ETFs to add value over index-based portfolios. 

Now, only PLK will be left to hold the mantle for active bond management in the emerging ETF marketplace. But soon to come is an even bigger player—Pacific Investment Management Co. The world's largest player in bond funds filed July 29 to come out with bond ETFs. Last week, it followed by filing to launch active bond and stock ETFs, among others. (See related article.)