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Monday, April 21, 2003

ETF Advisors to Liquidate

by: Sean Hanna, Editor in Chief

Being late to market was a hurdle that ETF Advisors apparently could not overcome. The firm, which is headed by Gary Gastineau, is planning to liquidate its exchange-traded funds (ETFs) and close its doors, according to a release. Trading in the funds will cease on May 21.

The firm had rolled out a series of four ETFs dubbed "FITRs" based on Treasury indices licensed from Ryan Labs. The four funds are scheduled to be liquidated on May 27, confirmed Gastineau. The funds had about 1,500 accounts and $75 million in assets under management.

The problem, according to Gastineau, was that the similar funds from Barclays Global Investors had eclipsed the FITRs in the marketplace and ETF Advisors lacked the financial resources to market them in the face of this competition. He also noted that Barclays was able to launch its funds first even though ETF Advisors had been first to file with the SEC.

"While I think they are terrific funds and the the outlook for them is fantastic, we did not have fire power to stick it out," he explained. Gastineau added that ETF Advisors was unable to find a new advisor to carry the funds forward. ETF Advisors was in part backed by Rosencrantz Asset Management, which was a general partner of the venture.

"We looked into the possibility of finding someone who would take them on," he said. "Right now the environment out there is such that no one wants to take anything on that effects this year's earnings." He added that ETF Advisors was in talks with a firm that was trying to arrange for its investment investment banking clients to make deposits in the funds so they would be assured of breaking even. That deal fell apart. "The notion of putting a lot of capital in someone else's fund had limited appeal," said Gastineau.

Ron Ryan, founder of Ryan Labs, said that the closing of ETF Advisors is unfortunate, but that the index creator is still interested in the ETF market. "Their [ETF Advisors] had the best performance and their tracking was the best," he said.

"We have an open door to any mutual funds who want to come in and talk to us," Ryan told the MFWire. "We would be happy to entertain ideas on the next ETF." He added that firm came "very close" to signing a second deal with a "very large" asset manager, but that the manager walked away after two weeks of negotiations.

Gastineau will be setting up a consulting operation to provide help to markets and exchanges and other would be issuers of ETFs.

"I think that ETFs have a bright future and I want to be a part of it," he said. 

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