ETFs in 2023: A Tale of Success and Failure (2024)

Exchange-traded funds are flourishing. They raked in $598 billion in 2023, and asset managers kept expanding the ETF menu with about 520 new launches. However, behind this glossy success exists a graveyard of ETFs that didn’t make it through 2023. These closures serve as a reminder of the fierce competition among the 3,500 ETFs available to U.S. investors.

There are a few reasons why ETFs generally die. Low assets under management, high fees, poor performance, and short track records are closely associated with the probability of closure. In 2023, there were 244 ETF closures with an average age of 5.4 years and average assets under management of only $54 million. They lost 4.8 percentage points on average over the trailing one year before liquidation—a poor showing indeed. This article will unpack the 2023 closures and draw out a few lessons for the ETF industry.

Closures By Morningstar Category

ETFs in 2023: A Tale of Success and Failure (1)

Commodities ETFs Take the Top Spot

Led by Barclays’ liquidation of 23 exchange-traded notes under its iPath lineup—encompassing various commodities such as coffee, copper, and sugar—the commodities broad basket and commodities-focused Morningstar Categories combined for the highest number of closures at 30. These ETFs had ample time to gather assets, but they failed to do so. The typical ETF was 8.5 years old but had only $25 million in AUM on average over the trailing 12 months before closure. Funds like Invesco DB Silver and Invesco DB Gold launched in 2007 but couldn’t amass sufficient assets.

The crowded large-blend and large-growth categories—with around 314 and 132 funds each—came in second and third place with 19 and 15 closures, respectively. Assets managers in these segments grapple with fiercer competition and lower fees, making success in those categories an uphill battle. Aggressive competition does not afford ETFs time to establish a track record. The closed ETFs in both categories were relatively young with around 2.0 and 2.4 years of performance history, respectively.

Intense competition pushes asset managers into more esoteric and innovative products in the hopes of finding success. For example, NightShares 500 ETF, which only launched at the end of June 2022, aimed to replicate the overnight performance of 500 large-cap U.S. companies, a time when markets are closed. To do this, it bought stocks at market close and sold them at the following open. Despite its unique approach, the ETF lost 6% over its lifetime and failed to gather significant assets before its closure in August 2023.

High-octane ETFs that make up the trading-leveraged equity category came in fourth place with 12 closures, marking the category’s second-highest year of liquidations since 2006. Catering to fleeting traders and risk-seekers, these ETFs had an average life expectancy of little more than one year. This is largely because of a surge in launches in 2021 and 2022 that surpassed the total launches from the previous five years combined. Many failed to gain traction, so it’s no surprise that the category saw one of its highest levels of annual closures in 2023.

Trading-Leveraged Equity Category Launches Over Time

ETFs in 2023: A Tale of Success and Failure (2)

Active ETFs took the industry by storm in 2023, reeling in around $131 billion for the year, beating their record of $90 billion set in 2022. While active ETFs are still a small portion of the overall ETF market, they represented a sizable portion of closures in 2023. Around 43% of all closures were active ETFs, reflecting a burgeoning yet highly competitive landscape. They face even greater competition in crowded segments like the large-cap space. All but six closures in the large-growth and large-blend categories were actively managed ETFs.

ETF providers, however, weren’t patient with these strategies to build a track record. Their average age was around 2.6 years. In contrast, the average age for passive ETFs closed in 2023 was 5.9 years.

Active ETFs Launches and Closures Over Time

ETFs in 2023: A Tale of Success and Failure (3)

Top Firms

Fund providers take different approaches to product development. Some are cautious about launching new ETFs, while others swiftly respond to market trends, hoping they can attract assets. Although the latter approach carries more risks, the allure of being a pioneer in an underserved segment remains enticing. Invesco’s closure of 29 ETFs across 20 different categories in 2023—the most among U.S. providers—is a testament to these risks. Unlike the trends highlighted here, Invesco’s ETFs weren’t cost-prohibitive, and the firm was patient in giving them time to gather assets. But an average fee of 0.33% and a life span of 7.3 years weren’t enough to overcome poor performance. These ETFs lost 5 percentage points on average and had an average AUM of $150 million.

The liquidation of the Barclays iPath commodities lineup put it in the second spot at 23. These ETFs didn’t manage to gather assets.

Direxion Funds claimed the third spot with 12 closures. Direxion’s ETF closures were a microcosm of the challenges that come with niche product development. Out of the 12 closures, six were leveraged equity ETFs with an average age of little more than a year coinciding with the increased level of competition in leveraged ETFs in 2021 and 2022. Another three ETFs targeted narrow themes like breakfast commodities, such as coffee and orange juice, as well as nanotechnology and mRNA.

Closures by Firm

ETFs in 2023: A Tale of Success and Failure (4)

Lessons Learned

ETFs’ success in 2023 conceals an undeniable truth within the product development cycle: Not all strategies thrive. A rising tide won’t lift boats unable to float on their own. Some sink to the bottom before garnering enough interest to sustain themselves. But those closures provide valuable lessons.

Throwing products at the wall and praying that some stick is a risky and potentially costly approach, amplifying the likelihood of closure. But it’s not new. Invesco’s closure of 29 funds across 20 different categories stands as a testament to the perils of such an approach. Likewise, chasing niche markets with limited utility, like Direxion’s leveraged ETFs, can lead to a quick exit.

As long as flows into ETFs keep growing, asset managers will persist in trying their luck. While there is no guaranteed recipe for success, cost-effective and well-constructed ETFs with a clear purpose are poised to have an easier time attracting assets and earning their keep with investors.

3 Great ETFs That Had a Lousy 2023

Don’t give up on this excellent trio.

2m 56s

The author or authors do not own shares in any securities mentioned in this article.Find out about Morningstar’s editorial policies.

ETFs in 2023: A Tale of Success and Failure (2024)


ETFs in 2023: A Tale of Success and Failure? ›

Active ETFs took the industry by storm in 2023, reeling in around $131 billion for the year, beating their record of $90 billion set in 2022. While active ETFs are still a small portion of the overall ETF market, they represented a sizable portion of closures in 2023.

Which ETF performed the best in 2023? ›

The 10 Best-Performing ETFs of 2023
TickerFundYTD Return
IBLCiShares Blockchain and Tech ETF46.67%
SATOInvesco Alerian Galaxy Crypto Economy ETF46.41%
XBTFVanEck Bitcoin Strategy ETF40.23%
BITOProShares Bitcoin Strategy ETF39.75%
6 more rows

How many ETFs closed in 2023? ›

In 2023, closures hit a three-year high of 246 ETFs shuttered, which was up from 147 the year prior in 2022. Yet in the first four months of 2024, there have been 91 closures, while during the same period last year there were 83.

Why does Dave Ramsey say not to invest in ETFs? ›

One of the biggest reasons Ramsey cautions investors about ETFs is that they are so easy to move in and out of. Unlike traditional mutual funds, which can only be bought or sold once per day, you can buy or sell an ETF on the open market just like an individual stock at any time the market is open.

What is the best performing ETF in the last 5 years? ›

The Top 5 Best Performing ETFs of the Last 5 Years
  • PSI.
  • ITB.
  • SOXX.
  • SMH.
  • GBTC.
Apr 17, 2024

Which ETF gives the highest return? ›

Performance of ETFs
SchemesLatest PriceReturns in % (as on May 24, 2024)
CPSE Exchange Traded Fund93.70120.7
Kotak PSU Bank ETF737.8184.83
Nippon ETF PSU Bank BeES82.3584.71
SBI - ETF Nifty Next 5068.41
33 more rows

What ETF has the highest average return? ›

100 Highest 5 Year ETF Returns
SymbolName5-Year Return
PSIInvesco Semiconductors ETF29.14%
FBGXUBS AG FI Enhanced Large Cap Growth ETN27.52%
FTXLFirst Trust Nasdaq Semiconductor ETF26.58%
XSDSPDR S&P Semiconductor ETF26.47%
93 more rows

How long should I stay in an ETF? ›

Holding an ETF for longer than a year may get you a more favorable capital gains tax rate when you sell your investment.

How many ETFs have failed? ›

In 2023, there were 244 ETF closures with an average age of 5.4 years and average assets under management of only $54 million. They lost 4.8 percentage points on average over the trailing one year before liquidation—a poor showing indeed.

How many ETFs should you invest in at once? ›

Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.

Can you retire a millionaire with ETFs alone? ›

Investing in the stock market is one of the most effective ways to generate long-term wealth, and you don't need to be an experienced investor to make a lot of money. In fact, it's possible to retire a millionaire with next to no effort through exchange-traded funds (ETFs).

Why should we avoid ETFs? ›

Market risk

The single biggest risk in ETFs is market risk. Like a mutual fund or a closed-end fund, ETFs are only an investment vehicle—a wrapper for their underlying investment. So if you buy an S&P 500 ETF and the S&P 500 goes down 50%, nothing about how cheap, tax efficient, or transparent an ETF is will help you.

What are the 4 funds Dave Ramsey recommends? ›

And to go one step further, we recommend dividing your mutual fund investments equally between four types of funds: growth and income, growth, aggressive growth, and international.

What is the number 1 ETF to buy? ›

Top U.S. market-cap index ETFs
Fund (ticker)YTD performanceExpense ratio
Vanguard S&P 500 ETF (VOO)7.7 percent0.03 percent
SPDR S&P 500 ETF Trust (SPY)7.6 percent0.095 percent
iShares Core S&P 500 ETF (IVV)7.7 percent0.03 percent
Invesco QQQ Trust (QQQ)5.8 percent0.20 percent

Which ETF has the best 10 year return? ›

1. VanEck Semiconductor ETF
  • 10-year return: 24.37%
  • Assets under management: $10.9B.
  • Expense ratio: 0.35%
  • As of date: November 30, 2023.

What is the most stable ETF? ›

Funds 1-5
  1. Vanguard S&P 500 ETF (VOO 0.68%) ...
  2. Vanguard High Dividend Yield ETF (VYM 0.34%) ...
  3. Vanguard Real Estate ETF (VNQ 0.07%) ...
  4. iShares Core S&P Total U.S. Stock Market ETF (ITOT 0.71%) ...
  5. Consumer Staples Select Sector SPDR Fund (XLP 0.26%)

What is the best performing stock of 2023? ›

Top-Performing Stocks of 2023
  • Coinbase.
  • Nvidia.
  • DraftKings DKNG.
  • Meta Platforms META.
  • Palantir Technologies PLTR.
Jan 2, 2024

What are the best performing funds in YTD 2023? ›

Among 2023′s best-performing funds: Baron Fifth Avenue Growth BFTIX, up 57.9%, and Fidelity Blue Chip Growth ETF FBCG, up 57.2%.

Which stock has the highest return in 2023? ›

High growth stocks-2023
S.No.NameROCE %
1.Tuticorin Alkali146.32
2.Cons. Finvest65.96
3.Jai Balaji Inds.61.05
4.Crest Ventures58.63
23 more rows

What's the best thing to invest in 2023? ›

The 5 best investments in 2023
  1. Treasury bills (T-bills): Best for those with a lower risk tolerance. ...
  2. High-yield savings accounts: Best for those who still want access to their money. ...
  3. Certificates of deposit (CDs): Best for those who have a specific timeline in mind and won't need access to their money before then.


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