Tag Archives: Guggenheim Airline ETF

Guggenheim to Close FAA and 8 Other ETFs

And the death knell continues.

Guggenheim Investments announced Friday it will liquidate in March nine exchange traded funds that have under performed in terms of gathering assets. The New York firm said it will focus resources on products that have demonstrated the most demand. The nine ETFs together hold a total of $144 million, roughly 1% of Guggenheim’s $13.7 billion in ETF assets. That’s an average of $16 million in assets per fund.

“Guggenheim remains committed to the ETF business,” said William Belden, head of product development. Guggenheim Investments, the investment management division of Guggenheim Partners, has become the eighth-largest ETF provider since purchasing the Claymore and Rydex ETF families.

The nine funds to close:

Guggenheim ABC High Dividend ETF
(ABCS)
Guggenheim MSCI EAFE Equal Weight (EWEF)
Guggenheim S&P MidCap 400 Equal Weight ETF (EWMD)
Guggenheim S&P SmallCap 600 Equal Weight ETF (EWSM)
Guggenheim Airline ETF (FAA)
Guggenheim 2x S&P 500 ETF (RSU)
Guggenheim Inverse 2x S&P 500 ETF (RSW)
Wilshire 5000 Total Market ETF (WFVK)
Wilshire 4500 Completion ETF (WXSP)

The most shocking of the bunch is the Guggenheim Airline ETF, the only ETF to track the airline industry. And of course, the disappearance of that great ticker, FAA. Granted the airline industry is a notoriously risky investment. Still, it’s pretty shocking that this fund has only $20.7 million in assets under management and an average daily volume of just 9,000 shares considering it surged 33% in 2012, twice the gain of the S&P 500. And year to date, FAA is up 13.6% vs. the 7.6% rise in the S&P, according to Morningstar.

Most ETF liquidations occur in funds that have a small-niche appeal. So, it’s disheartening that an ETF following the index that tracks the entire stock market, the Wilshire 5000 Total Market ETF (WFVK), couldn’t garner more than $9 million in assets.

The liquidating funds’ last day of trading on the NYSE Arca and the final date for creation and redemption activity is expected to be Friday, March 15, 2013. The ETFs will be delisted, Monday, March 18. Shareholders remaining in the affected ETFs as of close of business March 21, will have their shares liquidated as of that date’s closing net asset value. The liquidation proceeds will be distributed on or about March 22. The net asset value of each affected ETF on March 21 will reflect expenses encountered in closing the ETF.

Flying High with Airline Stocks

The skies have been unusually friendly of late for investors in the fickle airline industry. Over the past year through October 28, the NYSE Arca Global Airline Index surged 83.9%, walloping Standard & Poor’s 500-stock index by 68 percentage points. The Guggenhiem Airline ETF (FAA), which tracks the airline index, leapt 79.7%, giving it a tracking error of 420 basis points, or 4.2 percentage points.

Can the sector keep it up? Don’t bet on it.

One big reason for the airlines’ big move is that they are classic cyclical stocks. When the economy takes a dive, travel is one of the first expenses cut by both businesses and vacationers. As the economy picks up, airline profits rebound robustly as businesses reinstate travel budgets and start filling planes with passengers paying full freight, as opposed to leisure travelers who buy the cheapest tickets they can find. The International Air Transport Association, a trade group, recently boosted its estimate for the industry’s 2010 profit, from $2.5 billion to $8.9 billion. The industry lost $9.9 billion last year, according to IATA.

For the full story go to Kiplinger.com.