Some other active products were also a second bite at the apple, of sorts. BlackRock introduced 10 LifePath funds in October, bringing back target-date and in-retirement ETFs roughly nine years after shuttering its first attempts. Collectively, the funds held $33 million at year-end. And 15 years after collateralized loan obligations were dragged through the mud during the financial crisis, PGIM, BlackRock and Panagram Structured Asset Management launched dedicated CLO ETFs, the most successful of which was the $179 million Panagram BBB-B CLO ETF, adding $170 million in net inflows since its January 2023 launch.
While many 2023 launches and closures were calendar-based, such as yearly target maturity bond ETFs or options-based ETFs on a monthly cadence, seven new products didn't even survive the year. Of the rest of the 2023 launches that made it to this year, 218, or 40%, held less than $10 million in assets as of Dec. 31, according to CFRA.
"The pace of launches has been quite intense," said Ben Slavin, global head of ETFs for BNY Mellon Asset Servicing, "but the inability of products to scale can put a strain on the ecosystem."
Slavin said that there is an increasing amount of diligence required, especially for new issuers. "Do they understand the structure? Will their investment strategies fit into an ETF structure? What do their marketing and distribution plans look like? Will they make a reasonable attempt to raise assets?" he asked.
Even established issuers routinely prune their offerings. Invesco, whose ETF portfolio grew through a handful of acquisitions, has eliminated 105 products since 2017. BlackRock, the market leader with over 400 ETF offerings in the U.S., has cut 80 funds.
In a significantly higher interest rate environment than recent years, languishing ETFs become expensive, unmovable product for the trading firms that form the backbone of intraday ETF liquidity and the creation and redemption of ETF shares in the primary market.
"Liquidity provider balance sheets have shrunk," said Slavin, "and an ETF without meaningful assets or trading volume is not something that a market maker can profit from."
Several trading firms contacted for this article declined to comment. Market makers and authorized participants have been avoiding the spotlight amid the expectations of a bitcoin ETP.