Exchange-traded product closures spiked in 2008–an understandably tough year for all sorts of investment vehicles–and since then the number of closures has steadily declined. Only 38 products closed in 2011, down from 49 in 2010, 56 in 2009 and 58 in 2008.

But this year, the number of closures could buck that trend. Earlier this month, Global X Management closed eight funds that covered investment niches ranging from the global fishing industry to Mexican small caps. These products had failed to attract assets and were largely illiquid due to low trading volumes.

Then last week, Guggenheim Investments announced that it plans to close eight funds on March 23 for largely similar reasons:

• CurrencyShares Russian Ruble Trust (FXRU)
• CurrencyShares Mexican Peso Trust (FXM)
• Guggenheim EW Euro-Pacific LDRs (EEN)
• Guggenheim International Small Cap LDRs (XGC)
• Guggenheim Ocean Tomo Growth Index (OTR)
• Guggenheim Ocean Tomo Patent (OTP)
• Guggenheim Sector Rotation (XRO)
• Rydex MSCI All Country World Equal Weight ETF (EWAC)

Thus far, exchange-traded fund (ETF) sponsors have already announced a total of 16 fund closures this year. In 2011, by contrast, the first ETF closure didn’t occur until May.

The fact that more fund companies now compete on the basis of expenses will be a major contributing factor to the upcoming wave of closures. As more management companies launch essentially redundant offerings in niches and sectors in which a first mover already exists, their main point of differentiation has been to make their new product the cheapest one available. As a result, many new ETFs initially operate at a loss with the hope that low costs will eventually attract the assets necessary to generate profits.

If those assets don’t materialize soon enough, ETF sponsors quickly close these languishing funds and move along to their next product launch.

So what happens if you’re in a fund that’s slated to shut its doors? More often than not, it pays to sit tight.

When an ETF folds, the fund’s underlying holdings are sold and the cash is distributed to investors. Although there are costs associated with liquidating an ETF, the issuer generally covers those costs. Investors should receive the net asset value of their shares based upon their value the day the liquidation is executed. In reality, investors don’t lose money. Liquidation is generally handled in such a way that the value of the fund’s underlying securities will not be affected by the selling activity. Additionally, if the fund is focused on liquid securities, it probably didn’t hold enough of these securities to actually affect prices in a significant manner.

The worst consequences when an ETF shuts down are usually an unanticipated tax bill and extra commissions. When you receive the cash distribution from the liquidation, Uncle Sam takes his cut of any gains. And you’ll then have to redeploy those assets to new investments, which means you’ll pay additional commissions to your broker.

But aside from that small haircut, there’s no reason to panic when an ETF folds.

What’s New

While most fund companies have focused on launching products that purport to reduce volatility, last week PowerShares rolled out two funds that construct their portfolios with foreign stocks that exhibit high betas. Beta attempts to measure a security’s correlation and volatility relative to a particular benchmark. In general, high-beta names are expected to outperform their benchmark in rising markets and underperform in falling markets.

PowerShares S&P International Developed High Beta Portfolio (NYSEArca: IDHB) and PowerShares S&P Emerging Markets High Beta Portfolio (NYSEArca: EEHB) each hold the 200 highest beta stocks in their respective geographies. The developed-market fund charges a 0.25 percent annual expense ratio, while the emerging markets fund charges a 0.29 percent annual expense ratio.

Two new iShares funds were launched last week, both of which focus on international dividends.

iShares Emerging Markets Dividend Index (NYSEArca: DVYE) tracks a basket of 100 stocks that had positive 12-month earnings per share over the trailing year; a yield greater than 0 percent; paid dividends for at least the past three years; have market capitalizations of at least $250 million; and meet minimum liquidity requirements. The stocks that meet these criteria are then weighted according to annualized yield. Taiwan, Brazil and South Africa receive double-digit weightings in the portfolio, so they will largely drive the fund’s performance. The fund charges a 0.49 percent annual expense ratio.

iShares Asia/Pacific Dividend 30 Index (NYSEArca: DVYA) uses the same basic methodology, but limits its holdings to 30 dividend-paying companies in the Asia-Pacific region. The fund has a heavy weighting toward Australia and New Zealand, with the two countries accounting for about 55 percent of assets. Hong Kong receives a 21.1 percent allocation, while Singapore and Japan receive 17.1 percent and 6.8 percent weightings, respectively. The fund charges a 0.49 percent annual expense ratio.

Portfolio Roundup

There was no portfolio-specific news last week.