When looking at the list of worst-performing ETFs for calendar year 2021, several speak to clear themes that dominated the markets over recent months.
Volatility names top the list, while China-focused and emerging market ETFs make up the majority of the list, as the Chinese government crackdown slammed tech and education names in particular. Several cannabis ETFs also fell sharply after having reached highs in February on hopes for legalization.
Volatility Funds Top The List
Two volatility ETFs are the worst performers for the year, falling by 72.4% each. Both the ProShares VIX Short-Term Futures ETF (VIXY) and the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) offer exposure to near-term futures contracts on the Cboe Volatility Index.
The VIX is a real-time market index representation of volatility expectations. The so-called fear index has trended downward over the course of 2021. Though market tensions briefly flared several times during the year, the index still saw a dramatic decline, causing VIXY and VXX to notch significant losses.
The broad equity market has seemingly shrugged off worries around COVID-19 and inflation, continuing to notch new record highs throughout the year and leading to subdued levels of volatility.
Cannabis ETFs Go Up In Smoke
Several cannabis ETFs made the worst performers list, a sharp turnaround from where they were in the beginning of the year as Biden’s election ushered in a new era of hope around legalization efforts.
Through Feb. 10, the AdvisorShares Pure US Cannabis ETF (MSOS) had gained 50.8%, The Cannabis ETF (THCX) was up 136.7% and the Global X Cannabis ETF (POTX) was up 189.9%. The space became a focus of Reddit traders, helping to drive prices up.
However, sentiment quickly turned, and cannabis-related stocks fell for the remainder of the year, earning MSOS, THCX and POTX spots on the worst performers list for calendar year 2021.
ARK’s funds fared well through the early phases of the pandemic, but tech names that were geared toward a stay-at-home environment suffered in 2021.
Teladoc Health, a top holding in several ARK funds, including ARKG, was down 54.1% for the year.
The Cabot Growth ETF (CBTG) is another actively managed portfolio that made the list of worst performers after falling by more than 30% in the fourth quarter.
China Crackdown Crushes Related ETFs
The education and test prep industry was among the first to be targeted by the Chinese government beginning in July, including a ban on any for-profit tutoring services.
As a result, the Global X Education ETF (EDUT), which holds exposure to global companies providing products and services that facilitate education, is the worst-performing ETF of the year aside from VIX-related ETFs, falling by 50.5%.
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.
The KraneShares CSI China Internet ETF (KWEB), which tracks overseas-listed Chinese internet sector companies, fell by 48.7% More broad-based 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 38.2% and 32.5%, respectively. Though the ETFs are diversified across various countries, over half of each portfolio is exposed to China.