In a year in which most asset classes rallied, the competition to be among the 10 top-performing ETFs of 2016 was steep. It may come as a surprise then that the competition to be among the 10 worst-performing exchange-traded funds of 2016 was just as steep. Losses for this group were 30% or more―and these are nonleveraged and noninverse ETFs we're talking about.
VIX ETFs Down 70% In 2016
The three products at the bottom of the heap were all tied to the CBOE Volatility Index, better known as the VIX. The iPath S&P 500 VIX Short-Term Futures ETN (VXX), the VelocityShares Daily Long VIX Short-Term ETN (VIIX) and the ProShares VIX Short-Term Futures ETF (VIXY) each plunged 70% in the year-to-date period through Dec. 27.
Measures of implied volatility like the VIX typically move inversely to stock prices. It's been a wild ride for the index in 2016. In February, the VIX briefly topped 28 amid China-related concerns, and then again in June it reached 26 in the aftermath of "Brexit."
A Wild Ride For The VIX In 2016
But those spikes proved to be temporary. Earlier this month, as stock prices hit record highs, the VIX fell to a 2 1/2-year low of 11.3, down significantly from where it started the year, around 18. The aforementioned VIX-linked ETFs fell along with their underlying index. They've also had to contend with roll costs from contango, which is a drag on returns for futures-based products.
Just behind the VIX products in the list of worst performers is a pair of solar ETFs. The Guggenheim Solar ETF (TAN) and the VanEck Vectors Solar Energy ETF (KWT) shed more than 42% apiece. TAN and KWT are ending the year at their lowest levels since 2012-2013, as the once-positive long-term demand story is overshadowed by a host of negative factors.
From free-falling solar panel prices to the devastating bankruptcy of former solar heavyweight SunEdison to regulatory uncertainty following Trump's win, there's been no shortage of bearish catalysts for solar ETFs this year.
It's not all bad news for the industry, though. For the first time ever, more electricity-generating capacity from solar was added this year than from wind and even natural gas.
The next five ETFs on the worst-performers list had year-to-date losses ranging from 30 to 40%, including three single-country funds.
The Global X MSCI Nigeria ETF (NGE) lost 38.4% in the period as Africa's largest economy fell into an oil-induced recession. Low oil prices combined with a 27-year low in the country's oil output battered the Nigerian economy and stocks all year long.
Meanwhile, the VanEck Vectors Egypt Index ETF (EGPT) fell by 31.8% this year, most of that coming in November after the Egyptian government floated its currency, resulting in a 50% plunge in the Egyptian pound against the U.S. dollar.
USD/EGP Exchange Rate
In the chart above, the U.S. dollar surges against the Egyptian pound.
The move was seen as a positive for the Egyptian economy and Egyptian stocks, as it makes the country's exports more competitive and investing in the country more attractive for foreigners. In local currency terms, Egypt's stock market hit an eight-year high, but for investors in EGPT―which is denominated in dollars―that was little solace as the slide in the Egyptian pound cut deeply into returns.
The third single-country fund to make the worst performers list was the VanEck Vectors ChinaAMC SME-ChiNext ETF (CNXT) with a 26.9% decline. CNXT was the best-performing ETF of 2015, but this year China ETFs struggled, as economic growth in the world's second-largest economy continued to cool and the yuan slid sharply against the dollar (to its lowest level since 2008).
Biotech & Cocoa Blues
One of the funds rounding out the bottom 10 list was the BioShares Biotechnology Clinical Trials Fund (BBC), with a 34.2% drop. Biotech stocks in general fared poorly in 2016 amid accusations of price-gouging from politicians and regulatory uncertainty ahead of the new presidential administration next year.
The iPath Bloomberg Cocoa Subindex Total Return ETN (NIB) was the sole commodity name on the list, with a loss of 31.2%. Favorable weather conditions in West Africa, the main producing region for cocoa, may result in the largest surplus of the commodity in six years, according to Citigroup. Cocoa prices were last trading at a three-year low.
For a full list of this year's worst-performing ETFs, see the table below:
|VXX||iPath S&P 500 VIX Short-Term Futures ETN||-70.08|
|VIIX||VelocityShares Daily Long VIX Short-Term ETN||-70.03|
|VIXY||ProShares VIX Short-Term Futures ETF||-69.90|
|TAN||Guggenheim Solar ETF||-42.54|
|KWT||VanEck Vectors Solar Energy ETF||-42.38|
|NGE||Global X MSCI Nigeria ETF||-38.39|
|BBC||BioShares Biotechnology Clinical Trials Fund||-34.21|
|EGPT||VanEck Vectors Egypt Index ETF||-31.80|
|NIB||iPath Bloomberg Cocoa Subindex Total Return ETN||-31.19|
|CNXT||VanEck Vectors ChinaAMC SME-ChiNext ETF||-29.60|
Table excludes leveraged/inverse products, and measures total return in the year-to-date period through Dec. 27.
Contact Sumit Roy at [email protected]