By Scott Ronalds

Forbes magazine came up with a list of the 15 most outrageous ETFs last year. The winners included the Market Vectors Mongolia ETF, the PowerShares Lux Nano Tech ETF and the HealthShares Dermatology and Wound Care ETF.

We thought we’d seen it all. Recently, however, we came across a number of candidates that should be added to the list. They include:

  • FocusShares ISE-Reverse Wal-Mart Supplier ETF
  • Global X Fishing ETF
  • VelocityShares 2X Inverse Palladium ETN
  • Global X Brazil Financials ETF
  • AdvisorShares TrimTabs Float Shrink ETF

This is obscurity at its best, which is why it comes as no surprise that the first two on the list are being shut down this year and the other three may not be far behind. Indeed, ETF closures are a growing trend, as noted in a recent Globe and Mail article (The Trendy Term in ETFs: We’re Closed).

In the Globe piece, Shirley Won references a website (www.investwithanedge.com) which identifies ETFs that are on “Deathwatch”, defined as those that have been trading for more than six months but have had less than $5 million in assets for three consecutive months. The site currently identifies over 400 products in the U.S. that are in danger of closing.

You can learn a lot from the name and mandate of an investment product. ETFs with abstruse names and narrow mandates tend to have little investment merit and often don’t last long. Industry expert Dan Hallett (HighView Financial) suggested in an article yesterday that investors are worse off for having access to highly specialized products because they are largely speculative plays which tend to be highly volatile and in turn lure investors into poor timing decisions and frequent trading (ETFs are the New Mutual Funds (and Not in a Good Way))

If it looks like a duck, swims like a duck, and quacks like a duck … it’s probably a duck.

Related reading:
Say It Ain't So
ETF Providers Have Cluttered a Pristine Landscape
Buyer Beware: Leveraged ETFs
The ETF Diaries - Part V: All Dressed Up and Nowhere to Go