Exchange-Traded Fund Liquidations

Like businesses in any other industry, exchange-traded funds must generate enough revenue to continue operating. For a variety of reasons, some ETFs don't resonate with investors, and fund companies decide to close them and liquidate the assets.

A liquidation means the outstanding shares of an ETF will be converted to cash and distributed to shareholders.

Important information regarding the liquidation can be found in a prospectus supplement posted on the fund's website. Most notably the information will contain:

  • The last day of trading for the ETF shares
  • The liquidation date
  • The distribution date or period

Investors may sell their shares on the exchange at any point through the last day of trading. Standard commission charges would apply.

Or investors may hold the shares through the liquidation process. Scottrade does not charge a commission when shares are liquidated. It is important to note that once the announcement to liquidate is made, several factors could lead to the fund trading at prices that vary significantly from the net asset value of the underlying securities.

On the liquidation date, a final net asset value (NAV) is calculated and shares are converted to cash distributions. A fund company has the right to deduct any fees or charges from the final distribution amount of those who continue to hold shares. The distribution date or period provides a general idea as to when the cash would be available in shareholder accounts.

In either case, selling shares on the exchange or holding through liquidation, tax implications would apply.