#62 What happens when an ETF disappears?

A fund that performs poorly or whose theme is no longer in demand will stop growing and may even lose capital through outflows. This can affect traditional investment funds as well as ETFs. If the fund volume is too small to continue operating the fund profitably, it will be liquidated. You can continue to sell your ETF shares on the stock exchange until the official liquidation. In the case of traditional funds, this is referred to as a redemption order. Trading will only be suspended on the effective date of liquidation.

How does the liquidation of a fund work?

On the day of liquidation, the fund company calculates the final net asset value, i.e. the proceeds from the sale of all securities held by the fund. If you have not sold your shares by then, you will receive your pro rata proceeds a few days or weeks later, minus the sales and administration fees. The Swiss Financial Market Supervisory Authority FINMA monitors the entire process to ensure that everything is done in the interests of investors. The proceeds will be transferred to your bank account. You are then responsible for finding a new investment opportunity, as you will no longer be invested.

Sometimes, however, a fund is not closed but merged with a similar fund. The advantage of this is that you remain invested. The disadvantage, however, is that you have to check whether the new fund still fits your investment strategy.

Be cautious with hot topics

Inexperienced investors in particular are often guided by short-term trends. Funds that pick up on a current hot topic may attract capital quickly, but they can also disappear from the market just as quickly. One example of this is the hype surrounding the legalization of cannabis. In 2024, several funds with ticker symbols such as THCX and POTX were liquidated. In their short lifespan of around three years, investors lost around half of their investment in some cases. However, cannabis is just one of many trendy topics. In the US alone, a total of 169 ETFs were liquidated in 2024, most of them after less than five years.

What we look for when selecting ETFs

At True Wealth, we use passive ETFs that have generally proven themselves on the market over several years. The size of a fund is also important. If a fund manages less than 100 million francs, there is an increased risk of liquidation. Of course, size is only one factor that we consider in our selection. We also use ETFs that are as cost-effective and liquid as possible. These are usually more competitive and therefore less susceptible to liquidation. But it cannot be ruled out. If it happens, we as asset managers will take care of finding the best possible replacement.

Have you ever experienced a fund in your portfolio being liquidated? Feel free to send me an email about your experiences.