Investors who own exchange-traded funds (ETFs) planning to delist can choose to sell them in the open market at any time or wait to collect the liquidation proceeds, according to a note from Toronto-based National Bank Financial Inc.
If desired, investors may replace the closing ETF with a similar fund in the same category. In its note, NBF suggested similar ETFs that could be a replacement for seven ETFs that will soon be terminated by the Toronto-based iShares division of BlackRock Asset Management Canada Ltd. in three categories — alternative assets, multi-asset and emerging markets.
BlackRock announced in June it would be terminating on or about Sept. 27 the iShares Alternatives Completion Portfolio Builder Fund, iShares Conservative Core Portfolio Builder Fund, iShares Growth Core Portfolio Builder Fund, iShares Global Completion Portfolio Builder Fund, iShares MSCI Brazil Index ETF and iShares BRIC Index ETF.
“As the ETF market has been growing at a rapid clip, with nearly 600 ETFs listed in Canada from 24 providers and more on the way, it’s rare but not unusual to see an ETF delist and close, especially if it has low investor interest,” NBF said in its note. “While this may be inconvenient, an ETF’s delisting is like a forced disposition and presents no actual risk or loss to the end investor.”
Delistings are typically processed by liquidating the ETF’s underlying assets, and the cash goes to unitholders on pro rata basis as a one-time special distribution, NBF said. Investors are free to wait until the actual fund closing date to receive the ETF’s sale proceeds, or they can execute the exit from their ETF by selling on the open market at any time. In either case, the investor may face a taxable event related to the sale of capital property, depending whether they face gains or losses.
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