When ETFs, funds get the axe
Judging from two recent announcements, retail investors need to add another risk to their decision-making, the risk that at some future date the security that they are purchasing may not be around. Instead it may be terminated.
That risk is typically not present when a common share, a trust unit or a preferred share is being purchased but it is more common when the chosen security is a mutual fund or an ETF.
In those situations the investor is at the mercy of the manager who can decide to delist the particular security because it doesn’t meet its needs. It could be the product is too small, that it is not growing fast enough, or that it is too costly to run.
In those situations the investor is informed of the situation, told that the product will be wound up at some future date and to consult their financial and tax adviser. Typically the investors can expect a cheque — once the securities are sold and the liabilities paid — equal to their interest in the fund. And such actions occur on a regular basis, though it’s also common for managers to allow for funds to merge.
Twice in the past month retail investors have received such news:
Last Friday, Manulife Asset Management, now the manager of Standard Life Mutual Funds (following the parent company’s acquisition of Standard Life), said it was terminating 10 such funds on or about Sept. 25. At the time, Manulife said the decision was made “as part of its evaluation of the investment options of the newly combined organization to determine the best platform for its customers.”
The statement didn’t say how many customers it contacted before reaching such a decision. Manulife hadn’t responded to further questions by press time.
One month earlier, clients of BlackRock Canada were the recipients of a similar note. The clients were told that BlackRock had made plans to terminate six funds — all exchange-traded funds. The funds — that range from the oilsands index to China all-cap index to Latin America index and which have $75.4 million in assets — will cease trading on or about Aug. 27.
The clients were told that the decision was “based on an ongoing process to review its product lineup and ensure that it meets the evolving needs of its clients.”
The BlackRock situation dismayed at least one investor to such an extent that he wrote to the company and also to this newspaper. He is still waiting for a reply from BlackRock.
“It may not be fitting their portfolio, but it was still fitting my portfolio. I am a long-term investor and eventually the (underlying assets in the commodity fund) will go up,” he stated.
For this particular holder, this is the second time that investing with BlackRock didn’t result in a longterm investment. A couple of years back, his investment in another ETF — one focused on natural gas — came to an abrupt end when BlackRock decided to merge with its broad commodity index. “I was unhappy then and now I am really unhappy,” he said.
BlackRock said that since 1999, nine of its iShares funds (less than 0.5% of its total assets) have been closed. It has more than 100 products in its Canadian line-up.