When looking at the list of the worst-performing ETFs so far this year, there are several clear themes that emerge. Volatility names still top the list in spite of recent market tensions; the Chinese government crackdown has hurt education and tech names in particular; and precious metals miners are having a tough year.
|VXX||iPath Series B S&P 500 VIX Short Term Futures ETN||-58.56%|
|VIXY||ProShares VIX Short-Term Futures ETF||-58.52%|
|EDUT||Global X Education ETF||-39.56%|
|KWEB||KraneShares CSI China Internet ETF||-38.38%|
|PGJ||Invesco Golden Dragon China ETF||-33.94%|
|GDXJ||VanEck Junior Gold Miners ETF||-29.31%|
|SILJ||ETFMG Prime Junior Silver Miners ETF||-27.59%|
|SLVP||iShares MSCI Global Silver and Metals Miners ETF||-27.31%|
|EWEB||Global X Emerging Markets Internet & E-commerce ETF||-26.76%|
|JGLD||Amplify Pure Junior Gold Miners ETF||-26.01%|
|CHIC||Global X MSCI China Communication Services ETF||-25.99%|
|SGDJ||Sprott Junior Gold Miners ETF||-25.03%|
|PBW||Invesco WilderHill Clean Energy ETF||-24.70%|
|GOEX||Global X Gold Explorers ETF||-23.76%|
|EPU||iShares MSCI Peru ETF||-23.34%|
|ICLN||iShares Global Clean Energy ETF||-22.91%|
|SIL||Global X Silver Miners ETF||-22.76%|
|PALL||Aberdeen Standard Physical Palladium Shares ETF||-22.31%|
|TAN||Invesco Solar ETF||-22.20%|
|EMQQ||Emerging Markets Internet & Ecommerce ETF||-22.00%|
Volatility Funds Still Suffering
While several volatility ETFs fell off the list relative to last quarter, the top two worst-performing ETFs of the year remain those that offer exposure to near-term futures contracts on the Cboe Volatility Index.
Chart courtesy of Bloomberg
The VIX is a real-time market index representation of volatility expectations. The so-called fear index has trended downward since the beginning of the year. Though recent market movements have caused a small bump in the level of the index, it has still seen a dramatic decline since the beginning of the year.
The iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) and the ProShares VIX Short-Term Futures ETF (VIXY) both offer exposure to VIX futures with an average one-month maturity. The ETFs have both dropped by 59%, with much of this decline occurring within the first half of the year.
Precious Metals Lose Their Luster
Several precious metal ETFs populated the list this quarter. Typically, precious metals are an area that do well when inflation heats up. Though the CPI remains firmly above 5% for the first time since 2008, gold and silver miners have experienced sharp declines in the third quarter.
Several factors have weighed on this part of the market. The strengthening dollar is typically bad for gold and silver, as it makes the metals more expensive for international buyers.
Higher bond yields also tend to be a negative, as an asset like gold does not offer an income stream. While both gold and bonds are seen as safe haven assets, as bond yields increase, gold becomes less attractive on a relative basis.
The third quarter was also an important reminder that miners and physically backed ETFs can experience divergent performance.
Over the long term, the performance of mining stocks is correlated with the price of gold and silver. But these stocks are also affected by movements in the broader equity market itself. In times of equity market weakness, gold miners may fall even further than the price of gold itself.
Chinese Crackdown Spreads
The Global X Education ETF (EDUT) remains the worst performer of the year, excluding VIX-related products. The fund fell an additional 18.3% in the third quarter, as the Chinese government continued to crack down on private tutoring companies.
The government has also put pressure on other industries, including technology and gaming. This explains why several China and emerging market tech names show up on the worst performers list.
Emerging market tech ETFs such as the Global X Emerging Markets Internet & E-Commerce ETF (EWEB) and the Emerging Markets Internet & Ecommerce ETF (EMQQ) made the list as well, falling by 27% and 22%, respectively. Though the ETFs are diversified across various countries, over half of each portfolio is exposed to China.