Old Mutual Closes ETFs, Demonstrates Why Not Everything Should Be Free

Old Mutual rolled out a series of ETFs a year or so ago, a very late entrant to a highly crowded field.  And to make a big splash and attract assets (the wrong way), Old Mutual said they’d launch the product for free.  Another idiotic, margin-wrecking, scorched earth campaign.

Here’s Lara Crigger writing for Index Universe last December:

In the past few months, we’ve seen several new funds launch (particularly in the commodities space) that undercut the existing competition. And, of course, Charles Schwab came out swinging last month with its commission-free funds.

Now there’s newcomer Old Mutual, which announced it would waive expenses on its new GlobalShares FTSE Emerging Markets Fund (GSR) until Jan. 31, 2010, or until its assets hit $1 billion, whichever comes first. The fund launches soon.

Waiving expenses?  Does anyone really care about a .39% expense ratio if it means that the product will be run well and get enough support to raise assets?  And seriously, we needed another way to get exposure to “Emerging Markets”?  Emerging markets are more overexposed than Katy Perry at a Sesame Street taping. 

Well, Old Mutual got what was coming to it.  Here’s the message on my custodian’s screen this morning:

ETF provider Old Mutual Global Shares Trust announced that it plans to close 5 of its ETFs. The final day of trading will be Tuesday, October 5, 2010. Shareholders who do not sell their fund shares by this date will have their shares automatically redeemed on Friday, October 8, 2010, the funds’ last day of operation.

The 5 closing funds are:

GlobalShares FTSE Developed Countries ex US Fund (GSD)

GlobalShares FTSE All-World Fund (GSW)

GlobalShares FTSE Emerging Markets Fund (GSR)

GlobalShares FTSE All-Cap Asia Pacific ex Japan Fund (GSZ)

GlobalShares FTSE All-World ex US Fund (GSO)

Not everything needs to be free and sometimes Cheap is Expensive.  A very wise mentor of mine taught me that. 

Do you want a free haircut?  How about a volunteer pilot flying your family down to Disney World, just some dude that was like, “Listen, I don’t need a salary or benefits or even a uniform, just give me the yoke and I’ll fly this bird for nothing, babe!”   

I’ll live with a reasonable expense ratio on a fund as long as it’s in-line with the industry average and the expense is being taken in the name of maintaining quality or keeping the fund alive with assets and volume.

Rest In Peace, Old Mutual ETFs – we hardly knew ye.