234 funds exited this year! Retail investors' enthusiasm for investment has waned, and US ETFs are facing a wave of liquidation.

Zhitong App has learned that as the frenzy of intraday trading in the era of the pandemic gradually subsides, the number of liquidations in the $7.7 trillion US exchange-traded fund (ETF) industry this year will reach the second-highest level. As of the first week of December, 234 products have been liquidated or delisted this year. In comparison, there were 159 products liquidated last year and only 72 in 2021.

According to Bloomberg Intelligence, more than 10% of the ETFs liquidated this year are thematic ETFs. These funds typically attract retail traders who are looking to invest in hot concepts, many of which were launched during the pandemic.

Among the liquidated funds, there are 7 cryptocurrency and digital asset ecosystem funds, at least 2 metaverse funds, 2 short-check company funds, and 1 fund tracking companies such as Pfizer (PFE.US) and Moderna (MRNA.US) that are developing new COVID-19 vaccines.

For issuers looking to establish a foothold in the ETF space, part of the challenge is that investors now have 3,300 US funds covering different asset classes and strategies to choose from. Bloomberg Intelligence ETF analyst Athanasios Psarofagis said that over 700 funds entered the market in 2021 and 2022, many of which catered to the particularly active intraday traders during the pandemic. He stated that it makes sense for many funds to be liquidated as retail trading has become less fervent recently.

"In my view, this is good - we need to be reminded that there are rules. Future issuances must be more thoughtful," he said. "There will be more darlings of the COVID-19 era that will be liquidated."

Another factor contributing to the increase in liquidations is that as ESG strategies become more politicized, several ESG-related funds have closed down. So far, issuers have closed a record 14 ESG funds in 2023 amid outflows. After 10 consecutive years of inflows, $7.7 billion has flowed out of such ETFs this year.

However, a series of liquidations has not stopped some issuers from launching new products to cater to different tastes on Wall Street. The number of new ETFs launched this year reached 450, higher than the 378 launched last year. According to Bloomberg Intelligence, over 80% of the new products in the past 12 months have been actively managed funds. This is because issuers hope to capitalize on the popularity of funds such as the JPMorgan Equity Premium Income ETF (JEPI). The JEPI fund attracted billions of dollars in assets in 2023. There is a demand. Of the $500 billion of funds that flowed into US ETFs in the past 12 months, active strategies attracted approximately 25% of the capital, a record high.

Kim Tilley, portfolio manager at Lazard Asset Management, said, "Active strategies are key. As asset management firms look to build product lineups for the next phase of the cycle, active ETFs appear to be a crucial and prominent tool."