The Wall Street Journal-20080202-Claymore Plans To Cut Its ETFs By About Half

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Claymore Plans To Cut Its ETFs By About Half

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In one of the earliest signs of the shakeout unfolding in the hotly competitive exchange-traded-fund industry, Claymore Securities Inc. announced Friday that it has decided to shut down almost half of its 37 funds.

ETFs are index mutual funds that trade on an exchange like stocks. The board of directors for the Claymore funds voted on the move this week following a recommendation from the firm's ETF business group amid lagging investor interest for the products.

The funds will be closed to new investment on Feb. 20 and will be "liquidated," or dissolved, about a week later. The 11 funds being shuttered represent less than 2% of the firm's U.S. ETF assets, with many recently holding less than $5 million in assets each.

"No one wanted" the products that are closing, says Christian Magoon, senior managing director and head of the ETF group at Claymore. In fact, much of the current money in the funds is "seed capital," or the original start-up assets, rather than new investor cash.

Claymore was one of the fastest-growing ETF firms last year, increasing its assets to about $2 billion from about $430 million. However, much of its growth has come from just a handful of ETFs, for instance the $1 billion Claymore/BNY BRIC ETF for emerging markets, which is the firm's biggest ETF by far.

The plan illustrates how tough it is becoming for smaller ETF providers to break into the industry and build assets and investment records. Providers have shut down products before, but generally not of equal magnitude to Claymore.

And while ETFs have picked up steam in recent years, big providers continue to see much of that interest. Top ETF providers, like State Street Corp.'s State Street Global Advisors and Barclays PLC's Barclays Global Investors, were the best-selling fund firms overall in December, according to stock and bond money flows tracked by Financial Research Corp.

The Claymore funds being shuttered offer investors access to niches like vaccine developers, environmentally friendly companies or companies without business ties to Sudan. All shareholders remaining in the funds on Feb. 28 will receive the value of the shares as of that day, including any capital gains and dividends. Many investors will likely eventually be able to report tax losses, given several funds' weak performance.

Even as Claymore liquidates many funds, it also continues to launch other ones. This week, for instance, the firm launched its Claymore/AlphaShares China Small Cap Index ETF, and it is planning at least three more new funds in coming weeks.