Hi Karl and Allen, Re: Staying power of ETFs, CEFs and ETNs.........
I have also had some of these exchange traded devices disappear. There's no particular harm done when they do cease to exist, as we get our $$$ back as of a specific date. However, that leaves us with finding a suitable replacement and sometimes paying another commission to buy that replacement.
In reviewing ETFs from various suppliers (I-Shares, Vanguard, PowerShares, First Trust, Guggenheim, Wisdomtree, etc) of essentially the same category, I do look at
1) Average daily trade volume
2) Assets Under Management
3) Annual Expense Ratio
4) Internal stock component weighting
5) 52 week High/Low price ratio
6) Year-To-Date, Annual and 3 Year performances
7) Beta (from Morningstar)
8) Standard Deviation (from Morningstar)
I then create a sort of "heatmap" of these various things. Usually I've already narrowed down the suppliers to just 4 because of Annual Expense Ratio or some other measure. Of the four survivors, I then assign "Green" color to the best in each category, "Yellow" for 2nd best, "Orange" for 3rd place and "Red" for the worst. Further, since there are multiple categories, I assign 4 points for Green, 3 for Yellow, etc.
I then summarize the scores for each ETF by adding up their individual category scores. In this case, the highest score has the best total performance across several categories. For instance, in 2015 when I did this exercise, IYK (Consumer Staples) came in with the lowest total with PSL from Powershares second last, Guggenheim RHS 2nd and 1st Trust's FXG in first place. The three best were only separated by one point each while the Ishares component was well down from the others scoring the most "worst".
No single supplier in that review was the "best" as the results were split across the group. I then looked at the various suppliers in the YTD, 1 Year and 3 Year performance categories. Here I summed the total "Red" and "Green" indications from the various categories for each supplier for each time frame. This added some more insight. In this analysis Powershares had the greatest percentage of "Worst" performances while Guggenheim's (S&P 500 Equal Weight Sectors) scored the "Best".
Powershares ended up with the lowest total "Green" percentage and the highest "Red" percentage. Guggenheim's equal weight sectors took 2nd best in the "Red" percentage while winning the "Green" percentage. I-Shares was 2nd place and close to Guggenheim for "Green" and a close 3rd for "Red". 1st Trust scored the best in the "Red" percentage while scoring a close 3rd in the "Green".
I've intended to work this spreadsheet over with longer time windows of 5 Year and 10 Year now that most of these families have been around that long. Last time I went through this exercise I also added categories for ex-US geographic areas such as Japan, Pacific Rim (less Japan), European Union Emerging Markets and Latin America. There aren't as many suppliers that cover all of these, so the results aren't as easy to analyze. Also, some of them are "currency hedged" which further complicates things.
The heatmap made for a very colorful display. It also helped to eliminate the less productive suppliers if one wanted to choose only one supplier for all sectors and regions. If one was interested in selecting the "best" sector ETF from a variety of suppliers, this heatmap helped to clear up any confusion and eliminate "hype" from the selection process.
The Assets Under Management (AUM) component along with daily trade volume helped me steer away from funds that were at risk of being closed out. Low AUM and trade volume usually equates to poor survival. Low AUM sometimes also shows up in higher annual expenses, but not always. Further, current low AUM can be influenced by "sector rotation" such as the Energy price collapse we had over recent years. AUM levels fell way off from almost all suppliers during that period. Some sectors such as Utilities don't have really high AUM most of the time so those sorts of things also need to be taken into consideration.
Hope this stimulates some thinking!
