PowerShares Closing 19 ETFs

Invesco PowerShares announced today (Friday) that it plans to close 19 of its exchange traded funds (ETFs). The affected funds represent less than 1% of Invesco PowerShares’ total assets.

This type of action isn’t new to the ETF world as Claymore closed 11 ETFs last year representing less than 4% of their collective assets. Every ETF that comes to market, although well thought out, doesn’t always get traction. At one point the economics of keeping smaller funds open no longer makes sense.

I just got off the phone with Bruce Bond, president and CEO of Invesco PowerShares. “After carefully evaluating numerous factors including shareholder considerations, length of time on the market, asset levels and the potential for future growth, we proposed closing certain portfolios that have not gained sufficient acceptance with investors,” said Bond. “We remain fully committed to the ETF industry and expect to offer new, exciting products in the months ahead.”

As before, I’d expect the media to point to this event as a chink in the ETF industry’s armor. But the fact is, ETFs continue to show strength even during these trouble economic times and challenging market conditions. ETFs experienced $178 billion in net inflows in 2008 while conventional mutual funds had outflows in excess of $300 billion.

Bond expects the ETF industry to come out of this market and economic funk stronger than it was when it started. I look at this move by PowerShares as merely trimming the sails. With $4 trillion on the sideline, ETFs are poised to get more than their share of inflows when investor confidence comes back to the marketplace.

Here are the affected ETFs:

In early May 2009, the Funds will begin the process of closing down and liquidating their respective portfolios. This process will cause each Fund’s holdings to deviate from the securities included in its underlying index and each Fund to increase its cash holdings, which may lead to increased tracking error. May 18^th will be the final day of trading for the affected funds.

Shareholders may sell their holdings prior to May 19, 2009, and may incur typical transaction fees from their broker-dealer.  Shareholders of record on the close of business on May 18, 2009 will receive cash equal to the amount of the net asset value of their shares as of May 22, 2009, which will include any capital gains and dividends, in the cash portion of their brokerage accounts.

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