The Five Worst ETF Investments Ever

By
Matt Hougan
April 18, 2012
Share:

 

ETFs get a lot of bad press: There are panics about premiums and discounts; worries about ETN credit risk; and concerns about ETFs "collapsing" from being over-shorted. Heck, the Kauffman Foundation figured out a way to accuse ETFs of wrecking American entrepreneurship and seeding a systematic collapse of global financial markets.

Most of these accusations are simply untrue, driven by basic misunderstandings of how ETFs work. What is true, however, is that ETFs can be bad investments. In fact, the ETF landscape is now so broad and so varied that some of them can be terrible investments. It's not because there's anything wrong with the ETFs as a class, but because specific ETFs simply track investment ideas that perform abominably.

We looked at the performance of every nonleveraged ETF and ETN since their inception to find the five that have delivered the worst returns. It ain't pretty.

Number 5: Market Vectors Solar Energy (KWT)
Inception Date: 4/21/2008
Total Return Since Inception: -90.42%
Assets Under Management (4/12/12): $12.69 million
Total Inflows Since Inception: $64.02 million

The Market Vectors Solar Energy (NYSEArca: KWT) tracks the Ardour Solar Energy Index. In the five years that it's been open, the fund has lost 90.42 percent, an annualized return of -45.48 percent per year.

What's driven those returns? A few terrible seasons for solar.

Despite high energy prices, the solar industry has taken it on the chin lately, as a rapidly retrenching European market has hurt demand even as aggressive Chinese government subsidies (which allow solar products to be sold below cost) have hurt margins. Industry leader First Solar (NasdaqGS: FSLR)—KWT's third-largest position, with a 6.28 percent weight—is down 84 percent this year alone.

Will the solar industry turn around? It's not a shoe-in, though recent performance has been OK. FSLR just announced plans to cut its workforce by 30 percent (2,000 jobs).

KWT is a perfectly good ETF—it tracks well, charges reasonable fees and trades well enough for a niche fund. It's just been in the wrong place at the wrong time.

KWT Since Inception

 

Number 4: Guggenheim Solar (TAN)
Inception Date: 4/15/2008
Total Return Since Inception: -90.48%
Assets Under Management (4/12/12): $61.53 million
Total Inflows Since Inception: $345.80 million

Guggenheim's Solar ETF (NYSEArca: TAN) just edges KWT on the "5 Worst" list, with a total return since inception of -90.48 percent through April 12, compared with -90.42 percent for KWT. Investors seem to favor TAN: It has four times the assets of KWT. But the fund—which tracks the MAC Global Solar Energy Index (SUNIDX)—hasn't performed any better. Investors have poured a net $346 million into the ETF, but only $62 million remains.

Again, TAN is a perfectly fine ETF. Solar has just been a terrible investment.

TAN Since Inception


ETF.COM CHANNELS

Want to learn more about smart-beta ETFs? Check out our smart-beta guide, essentials library and ETF screener!

ETF DAILY DATA

The small-cap fund 'IWM' led redemptions on Monday, May 4, as a rising market offset net outflows and lifted total U.S.-listed ETF assets to $2.146 trillion.

'SPY' and a number of SSgA sector funds paced that firm's issuer-leading outflows on Monday, May 4, as a rising market lifted total U.S.-listed ETF assets to $2.146 trillion.

ETF.COM ANALYST BLOGS

By Olivier Ludwig

Solar energy is more than a fad these days. Just look at high-flying solar ETFs.

By Olly Ludwig

Why is it that some human advisors seem less fond of foreign stocks than robo advisors?

By Dave Nadig

Buying and selling ETFs wisely means understanding the difference between being a buyer and a seller.

By Olly Ludwig

Saving the world as an eco-conscious investor is a tough row to hoe, but ETFs make it a bit easier.