SPA Fund Closures Cost Investors Over 10% Of NAV

The closure of SPA ETF’s six UK-based exchange-traded funds, due to occur on 1 May, appears to have already cost investors in at least two funds over 10% of the net asset value.

On 13 March, the board of SPA ETF plc announced that trading in the Market Grader 40, Market Grader 100, Market Grader 200, Market Grader Large Cap, Market Grader Mid Cap and Market Grader Small Cap ETFs was being suspended, and that a compulsory redemption of all shares in issue would take place on 1 May at the net asset value per share on that date. The six ETFs have already been delisted from the Borsa Italiana, on 30 March.

At the same time Spa announced that the company’s board had charged all unamortised establishment expenses, and all other costs associated with the closure, to the funds on or around 9 or 10 March.

The indices tracked by the SPA ETFs were developed by the Florida-based research company Marketgrader.com. Marketgrader’s website does not show daily index levels or returns. However, on its website SPA ETF compares the returns of three of the ETFs – the MarketGrader 40, 100 and 200 – to those of the broad-based US equity index, the S&P; 500.

A comparison of the daily NAV returns of the SPA MarketGrader 40, 100 and 200 ETFs with the daily returns of the S&P; 500 index between 5 and 17 March shows that, for the three funds, the returns were within +/- 1% of the S&P; 500 index return on all but two of the days. However, over the two-day period from the 9 March close to the 11 March close, the SPA MarketGrader 40 ETF lagged the S&P; 500 index by a cumulative 14.34%, the SPA MarketGrader 100 ETF lagged the S&P; 500 index by a cumulative 15.13%, and the SPA MarketGrader 200 ETF lagged the S&P; 500 index by a cumulative 9.26%.

The 13 March statement from SPA suggests that these divergences, representing well over 10% of NAV for two of the ETFs, can be attributed largely to the charging of closure-related costs to fund investors.

Index Universe requested a breakdown of the closure costs from SPA ETF earlier this week, but so far the fund manager has declined to give details.

NAV data for the SPA MarketGrader Large, Mid and Small Cap ETFs were unavailable from the SPA ETF site beyond 5 March, and so it is unclear to what extent these funds’ NAVs may have been similarly affected.

It’s also unclear whether the US listings of the same six SPA ETFs have been affected by similar closure costs.

The Deutsche Bank “European ETF Liquidity Trends” report for 11 March gave the total assets under management in the SPA MarketGrader 40, 100 and 200 ETFs as €9.4 million, implying that the costs charged to these three funds’ investors are likely to have exceeded €1 million.

ETF issuers often agree to cover fund establishment costs out of their total expense ratio, while reserving the right to increase them after a shareholder vote. The scale of the SPA ETF charges is likely to draw investor attention to the potential costs of a fund closure, particularly when assets under management are relatively small, or where there are still unamortised expenses.

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