Exchange-Traded Funds (ETFs) can theoretically go bankrupt. This can occur when the fees they charge to investors no longer cover their expenses. This situation can arise if the ETF loses assets due to investors pulling out of the fund. When that happens, the cost per investor increases exponentially, which may drive the ETF to bankruptcy1.
However, it’s important to note that this scenario is somewhat unlikely and rare. What mostly happens before an ETF actually goes bankrupt is that the asset management company (e.g., Vanguard, iShares, etc.) will decide to close the fund1. This can happen for several reasons, but one of them might be that the fund has simply lost popularity and is no longer profitable for the asset management company to sustain1.
In 2023, 234 ETFs closed globally2. The top reasons for closing or liquidating an ETF include a lack of investor interest and a limited amount of assets2. When ETFs with dwindling assets are no longer profitable, the company may decide to close out the fund。
