What is a 'Zombie ETF'

A zombie ETF refers to exchange traded funds that are seeing little trading volume or increased investment. These funds are described as zombies because they aren't growing and are likely to be cut by the issuer. In other words, the ETF may be dead already and just not know it. ETFs are like many financial instruments, in that a lack of new capital flowing in and/or trading volume in the shares can be a bad sign. The liquidity concerns with the low trading volume scares investors away even as the costs of administering a fund that isn't attracting new capital inflows erodes profitability for the issuing firm.


Zombies are no strangers to the world of finance. There are zombie banks, zombie debt and zombie titles. In finance, "zombie" is generally used to describe situations where capital is tied up without a clear path to resolution. Zombie ETFs also fall into this type of description in that the issuer has a fund that isn’t attracting new funds and isn’t seeing its shares trade in any significant amount. So the issuer is left holding a fund that costs money to maintain but has little prospect for growth. In this situation, it is usually only a matter of time before the issuer shuts down the ETF in question.

The Rise of Zombie ETFs

The main reason zombie ETFs are on the rise is that there are more ETFs being issued every year. The broad, popular ETFs like the SPDR S&P 500 ETF have filled much of the market demand, but there are new areas opening up in hyper-focused ETFs. The risk with this kind of experimentation is, of course, that a fund just doesn’t catch on with investors and joins the growing ranks of Zombie ETFs. The success of new ETFs isn’t even measured by returns, however, as some zombie ETFs have been shut down despite posting strong returns. The issue is whether a fund fits a strategic need in enough investors' portfolios. A targeted ETF can act as a market hedge or help diversify a portfolio, but it still needs to have a broad enough appeal that it is profitable for the company managing it.

From Zombie ETF to Dead ETF

Of course, there is no universal guideline on when a zombie ETF will be put down. Some issuers give a generous timeline for a new fund to season and start generating interest, while others are able to make quick culls based on the growth in other offerings. Exchanges have also played a role in the proliferation of ETFs and thus the rise of zombies. Exchanges are competing for new listings to add to an industry that has been a growth driver when other financial issues have dried up, and they aren't above incentives for new ETF listings. This can encourage issuers to let a zombie ETF linger longer than they would otherwise. If a fund hasn’t seen inflows for successive quarters and the trading volume is low, however, there is a good chance that the issuer has it in the sights even if they aren’t quite ready to pull the trigger.

  1. Zombies

    Companies that continue to operate even though they are insolvent ...
  2. Zombie Bank

    A bank or financial institution with negative net worth. Although ...
  3. Zombie Foreclosure

    A situation (or a home in this situation) that occurs when a ...
  4. Zombie Title

    A right to ownership and possession of a home that remains with ...
  5. ETF Of ETFs

    ETF of ETFs are exchange-traded funds (ETF) that track other ...
  6. Exchange-Traded Fund (ETF)

    An Exchange-Traded Fund (ETF) is a security that tracks an index, ...
Related Articles
  1. Investing

    A Look At the Growth Of the ETF Industry

    Explore the phenomenal growth rate of the ETF industry, and learn some of the principal reasons why ETFs are projected to continue to grow at a rapid pace.
  2. Investing

    The Advantages of ETFs Compared to Index Funds

    With the ongoing ETF boom, ETFs gain more variety and increased competition in the market leads to further investors' advantages compared to index funds.
  3. Investing

    5 ETFs Flaws You Shouldn't Overlook

    Despite their popularity, exchange-traded funds, or ETFs, have some drawbacks that investors should know about.
  4. Investing

    For More And More Investors, ETFs Are A Godsend

    Average and cautious investors can experience lower risk with ETFs - a safer alternative to swaps and derivatives.
  5. Investing

    Buying and Selling ETFs: It's Easy, Here's How to Start

    Learn the basics of exchange-traded funds, including how they are bought and sold, how they differ from mutual funds, and several examples of ETFs.
  6. Investing

    5 Signs It's Time to Dump Your ETF

    You’ve bought into your favorite ETF, and it's been a great ride. When should you exit? Here are the top signals to exit an ETF position.
  7. Investing

    Diversify Your Portfolio With Exchange Traded Funds

    Exchange traded funds (ETFs) have become very popular recently, and for good reason.
  8. Investing

    Little Guys Powering Big ETF Growth

    Exchange traded funds continue growing at a torrid pace and retail investors are a big reason why.
Hot Definitions
  1. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  2. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  5. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  6. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
Trading Center