Van Eck Global’s attempt to capitalize the smart beta craze in the ETF world has failed. The issuer’s Market Vectors unit has decided to cease operating four smart-beta international ETFs – Market Vectors MSCI EM Quality ETF (QEM), Market Vectors MSCI EM Quality Div ETF (QDEM), Market Vectors MSCI Intl Quality ETF (QXUS) and Market Vectors MSCI Intl Qual Div ETF (QDXU).
 
All the ETFs were introduced only last year but failed to gather assets. Together, they hold assets worth just over $17 million. We presume the underperformance of the emerging market stocks is another reason for the issuer’s decision.
 
The ETFs have performed badly over the past one year. QEM lost 24.1%, QDEM shed 31.1%, QXUS dropped 14.9% and QDXU fell 21.7% in the said timeframe (as of Sep 16, 2015). The ETFs will cease trading from Sep 19 and liquidation is expected to occur on or around Oct 28.
 
The shut down of these four ETFs will bring the number of closures till date this year to around 180. At this pace, total closures for the year are expected to surpass the closure of 190 ETFs in 2014.
 
Some Smart-Beta ETFs in Focus
 
Smart beta ETFs aims to obtain a return that’s higher than the return of the benchmark index, which is the fund’s alpha. Apart from higher returns, the fund seeks to reduce costs and enhance diversification. They follow a passive management strategy with a tweak in the component weightings unlike traditional, market-cap-weighted index funds.
 
In the first five months of the year, smart-beta ETFs have amassed roughly $40 billion in net assets. As a category, about a quarter of the $2-trillion-plus ETF industry is occupied by smart-beta products (read: These Smart-Beta ETFs Survive Market Volatility).
 
Presently, iShares Russell 1000 Growth (IWF) is the biggest smart-beta fund with AUM of roughly $28.8 billion. The fund has returned 2.9% in the year-to-date time period and has a Zacks Rank #2 or ‘Buy’ with a Medium risk outlook.
 
Investor can also consider iShares MSCI EAFE Minimum Volatility (EFAV) and WisdomTree Europe Hedged Equity ETF (HEDJ), as both these smart-beta funds have returned around 5% so far this year.
 
EFAV has $2.9 billion in AUM and carries a Zacks Rank #3 or ‘Hold’ with a Low risk outlook while HEDJ has $19.3 billion in AUM and sports a Zacks Rank #1 or ‘Strong Buy’ with a Medium risk outlook. Among these three funds, both IWF and EFAV are cheaper options (each charges 20 bps in fees) compared to HEDJ (58 bps).

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