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What Happens When an ETF Closes its Doors?

The Process of ETF Liquidation and Fund Delisting

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As great as it is to see more and more innovative ETFs being brought to market (now more than ever), there is always survival of the fittest at play and some exchange traded funds do get delisted. Whether it be for a lack of interest or another reason, some ETFs will have to be taken off the market. So what happens if you have these funds in your portfolio?

Typically the ETF provider will make an announcement about the dates the ETF will stop trading and when the fund’s assets will be liquidated. The notice is usually about 30 days, which should give investors ample time to find replacement investments or ETFs and to alter their trading strategy.

During the time between the delisting announcement and the expiration date, the ETF will still trade as normal on the appropriate exchange, but there’s no doubt that the news will somewhat impact trading volume and price. However, the goal of this time is to allow investors the opportunity to trade out of current positions, find alternate hedging opportunities, evaluate risk, etc, right up until the last day of trading.

This time is also used for the ETF provider to make investing strategy adjustments as well. Sell underlying assets, modify positions, etc. So it is an important time frame for both the institution and individual trader who has the ETF in their portfolio.

Once the final bell rings (death toll) then it will take some time for the ETF to go through the liquidation process. Keep in mind, if you are the owner on record at the time of the ETF delisting, you will get the cash equivalent value of the fund’s assets at the time of sale (liquidation), not the value of the final closing price on the last day of trading.

There will be a few days lag between the closing bell and the actual execution of the fund’s liquidation. So there could be slight discrepancies in those prices, as well as some risk. So your final cash values could be different than the closing trading price as they are truly based on the liquidation price. In other words the prices of the securities in your fund could increase or decrease during the time period between the last trade and the final liquidation date. So definitely consult with your broker or clearing house about the values once the process is complete.

So while it is a bit of a complicated process, the liquidation process is mostly painless for the investor. And if you follow your funds closely, you should have ample time to react to the news and adjust trading strategies. But even if you do miss the opportunity, you are still going to get fair value for the fund based on the final liquidation. You’ll just want to be careful if that particular fund is part of a hedging strategy, which means it will no longer be working in your favor.

And of course if you want to keep track of fund openings and closings, be sure to check out the About ETF blog. We are always on top of new ETFs as well as those that hit the exchange traded fund graveyard.

Fortunately, there are now more ETF choices than ever to replace closed funds, and one of the best places to look for an alternative fund is our comprehensive lists of different types of ETFs. Just be sure to conduct your due diligence and research each fund before making any trades. Understand the risks of ETFs, learn what is in each fund, consult a financial professional, and watch how they react to different market conditions. And of course keep on top of the news for any find you own to make sure it’s not going to close any time soon.

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  5. ETF Closing, Liquidation and Delisting Process What Happens When an ETF Shuts Down

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