Once Hot, Now Not: Some Global Small-Cap ETFs Struggling To Survive

Published on Thursday, 22 December 2011 21:18 Written by ETF Professor

There was a time when ETF issuers could throw just about any idea for a new fund related to the emerging markets out there and it would work. It was almost the reverse of a situation that the late, great Los Angeles Lakers announcer Chick Hearn used to describe with his quip about throwing a pea and not being able to hit the ocean.

That saying applied to a basketball player with a cold shooting touch. Once upon, ETF issuers arguably had the opposite problem regarding emerging markets ETFs, or it least it seem they did. Nearly every idea appeared to be on its way to stardom.

One of those ideas that looked stellar was more country-specific small-cap ETFs, particularly funds tracking emerging markets.

Seemed logical. After all, the signs were there. The Market Vectors Brazil Small-Cap ETF (NYSE: BRF) has been around for about 30 months and has almost $590 million in assets under management (AUM). The Guggenheim China Small-Cap ETF (NYSE: HAO) is about to celebrate its fourth birthday with $153.1 million in AUM.

iShares came along with a rival to BRF and that ETF has over $43 million in AUM and the firm has a rival to HAO that has nearly $15 million in AUM.

But recent days have shown ETF investors all is not right in the world of country-specific small-cap ETFs. As we reported earlier this week IndexIQ will shutter the IndexIQ Hong Kong Small-Cap ETF (NYSE: HKK) and the IndexIQ Taiwan Small-Cap ETF (NYSE: TWON).

The firm also offers the IndexIQ South Korea Small-Cap ETF (NYSE: SKOR), an ETF we like, but one that is also struggling to attract to assets.

On Tuesday, Global X said it will close the Global X Mexico Small-Cap ETF (NYSE: MEXS). That was a first-to-market ETF for Latin America's second-largest economy and it still struggled to gain traction.

Adding to the argument that 2011 has been unkind to country-specific small-cap ETFs is the fact that the Market Vectors Russia Small-Cap ETF (NYSE: RSXJ) and the Market Vectors Germany Small-Cap ETF (NYSE: GERJ), both first-to-market funds, have less than $6 million in AUM combined.

To make this situation even more interesting is that IndexIQ previously filed plans for small-cap ETFs for Indonesia and Thailand and in October, iShares, the world's largest ETF issuer, filed plans for eight international small-cap ETFs. Included in that potential lineup are ETFs for Germany, Hong Kong, South Korea and Taiwan. Will these ETFs see the light of day? Time will tell, but it's hard to be bullish on their prospects right now.

To be fair, the Market Vectors India Small-Cap ETF (NYSE: SCIF) and the EGShares India Small-Cap ETF (NYSE: SCIN) could be added to the list of somewhat successful country-specific small-cap ETFs. At the very least, these ETFs have enough assets to survive a while longer.

However, it appears that at the moment, investors aren't too enthralled by country-specific small-cap ETFs (excluding BRF and HAO of course). The idea is a valid one for a fair number of countries. Now it just needs to be validated by investors.