Fidelity Investments has announced plans to liquidate five exchange-traded funds next month.
The giant asset manager will close Fidelity Digital Health ETF (FDHT), Fidelity Sustainable Core Plus Bond ETF (FSBD), Fidelity Sustainable Low Duration Bond ETF (FSLD), Fidelity Sustainable U.S. Equity ETF (FSST) and Fidelity Women's Leadership ETF (FDWM), with investors able to sell their shares through Nov. 13.
The ETF portfolios will be placed into cash, cash equivalents or other liquid assets by the time the funds are liquidated a week later, Fidelity said.
The company said that it regularly reviews its offerings and noted that it provides more than 70 ETFs and exchange-traded products with $144 billion in assets under management.
"Those liquidations don't surprise me too much," Daniel Sotiroff, senior analyst, passive strategies research, North America at Morningstar Research Services, told ThinkAdvisor by email. "All five are small. Fidelity Sustainable U.S. Equity ETF was the largest and it only had $17 million invested in it at the end of September. All five ETFs were launched in 2021 and 2022, so they've had time to garner interest, but it doesn't look like a lot (if any) investors were biting.
"Small ETFs like these usually have to be rationalized because the revenue they generate may not be enough to overcome the costs of managing them," he said.
Sotiroff suggested investors may have lacked interest because one fund, Fidelity Digital Health ETF, is a thematic ETF, and the other four appear to be focused on environmental, social and governance factors and sustainability. "Thematic funds tend to shut down after the underlying theme becomes less interesting or less relevant — that happens a lot. ESG and sustainability have also fallen out of favor over the past two years or so," he said.
"What's the lesson for advisors and individual investors?" he asked. "Stay away from really small ETFs. They're much more likely to shut down and you may have to pay capital gains taxes if your shares have increased in value."
Image: Shutterstock
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.