The Five Worst ETF Investments Ever

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April 18, 2012
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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


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