While active exchange-traded funds can offer advantages over traditional mutual funds, investors need to do their homework. One should note the size and age of a fund when evaluating its suitability for a portfolio. A small fund can cost investors, whether through a wider gap between the price at which it can be bought or sold (known as the bid-ask spread) or an unwanted tax bill.
The immense success of active ETFs in Canada can overshadow the smattering of funds that either closed or captured little attention. According to Morningstar’s 2025 Canadian Active ETF Report, half of all current active ETFs held less than C$50 million, while a quarter of those observed closed over the last 10 years ending March 2025. It hasn’t stopped the frenetic pace of launches, however. 2024 was a record year for new active ETFs.
Unfortunately, two in three closures were liquidations, wherein a fund’s holdings are sold off and investors receive the proceeds. Unlike with a merger, a liquidation can come with an unwanted tax bill for investors, along with reinvestment risk. Investors would do well to avoid putting themselves in such a predicament.
What ETFs Are Most at Risk of Liquidation?
There were two common themes for closed ETFs: They held a small amount of assets and were relatively new. The average age of a liquidated ETF was only 3.6 years, against 6.0 years for liquidated mutual funds over the period observed. Meanwhile, 95% of all liquidations and mergers involved funds with less than C$50 million in assets.
Investors should be aware of these dangers when evaluating their options. A growing cohort holds both ill-fated traits. Surviving active ETFs launched between March 2021 and March 2023 hold the greatest concentration of minimal success. Seven in every ten funds between two and four years old held less than C$50 million in assets, compared with four in ten for those five years or older.
While liquidation always remains a possibility, ETF investors can put themselves in a better position by taking the more established route.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
