U.S. ETFs needs a spring cleaning. The number of funds is overwhelming, at 5,072 as of March 31, 2026. Worse, over 1/3 of that total (1,950, or 38.4%) are tiny, with assets below $50 million and annual revenues below $1 million.
Those tiny ETFs clutter up screeners and create confusion for investors. Most are also unprofitable: 1,850 of them drew implied annual revenues of $250,000 or less as of March 31, 2026.
Granted, many of those funds are still unseasoned and may need more time to attract investor assets. Some might yet flourish, but many others will find themselves stuck in low AUM mode.
Eventually, the issuers of these languishing products will make the tough but necessary decision to shutter their unprofitable products. Given the flood of recent launches, it’s sensible to expect a wave of closures ahead.
Since the SEC’s ETF Rule (6c-11) went into effect December 2019, ETF issuance has gone into overdrive. Launches make and break records annually, as shown in the chart below:
As of the end of March 2026, launches were on pace to come in just below the record 2025 level.
At the same time, ETF closures slowed relative to historical levels. Measured as a percentage of the prior year-end count, closures have dopped from 5.5% during the 2010s to 5.1% between 2021-2025.
The rolling 5-year average ETF discretionary closure rate peaked in 2020 at 7+%. It has since dropped to just above 5%. 2020 was a high-water mark for closures, because of COVID and the market disruptions, but pre-COVID closure rates were generally above 6%.
The two trends of increased launches and decreased closure rates jointly point to a growing overhang of potential ETF closures.
Let’s start with the most extreme case of the lowest AUM products. The chart below shows the historical closure rates of ETFs with lifetime median AUMs under $10 million.
Issuers have pulled the plug on nearly all of the lowest-asset ETFs launched prior to 2020. Later vintages have been given more time. Perhaps this is unremarkable, as issuers give some runway to newer products. But how much runway is reasonable?
Consider the 474 ETFs launched in 2021, as shown in the chart below.
The closed ETFs (37%) and the clearly successful ETFs ($100M+ AUM) bookend the 1/3 of the group that are in limbo, with assets between $0 and $100 million.
Kingsbarn Tactical Bond ETF (KDRN-US) is an extreme example. The green line in the chart below depicts assets under management; blue indicates inflows and outflows.
As of March 31, 2026, KBRN generated less than $6,000 in annual revenue. Does anyone benefit from that situation?
Kingsbarn Capital Management likely started on the wrong foot by charging 1.25% in management fees. They dropped it to 0.50% in October 2025, attracting an inflow of $1.2 million and thus doubling their AUM, for a few months.
Barring a change of fortune, the lack of revenue will become painful enough to force Kingsbarn to delist KDRN.
KBRN’s story may be extreme, but low revenue situations are quite common. In the following chart, consider the distribution of closed ETFs with AUM of $40 million and below, arranged by launch year.
As the ETF-Rule-era product launches age, their issuers will have to reckon with the world as it is, not as they wish it would be.
While asset managers assess their options, investors would be wise to play defense. Extrapolating with current median AUM values indicates that 2021-2023 vintages are 271 closures behind the historical pace.
FactSet’s Fund Closure Risk metric assesses the likelihood an asset manager will delist a product. AUM is the primary input, but not the only one. Fund Closure Risk also accounts for the level of competition in a market segment, the direction of investor sentiment (as measured by fund flows), and the fund’s legal structure (exchange-traded notes and geared ETFs are especially likely to fold).
The “Equity: Global Real Estate” market segment provides a good case study. The eight broad-based offerings within this segment range in AUM from $3 billion down to $13 million. As AUM falls, Fund Closure Risk rises.
Some newcomers are doing well, such as Dimensional Global Real Estate ETF (DFGR), Vert Global Sustainable Real Estate ETF (VGSR), and Long Pond Real Estate Select ETF (LPRE). Closure-wise, those products are rated low risk.
Cambria Global Real Estate ETF (BLDG)’s positive inflows partially offset its fledgling asset base, combining for a medium risk rating. Fidelity’s product, FPRO, hasn’t found traction and is therefore flagged at high risk of delisting.
Fund Closure Risk at high is a risk indicator, not a death sentence. As we have seen, many issuers extend second and third chances to low-asset, low-flow products. Still, investors who prefer to avoid the potential capital gains taxes and inconvenience of finding a replacement fund can gain additional comfort looking for ETFs with low Fund Closure Risk designations.
This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.