Best and Worst Performing ETFs of 3Q

PFIX performed the best, while TAN trailed the pack.

Exchange-traded funds with exposure to interest rates filled the lineup of best- and worst-performing funds for the third quarter of 2023. 

The best-performing ETF in the quarter was the Simplify Interest Rate Hedge ETF (PFIX) which returned 52%. PFIX uses derivatives to take advantage of rising long-term interest rates. According to data from the Federal Reserve, the market yield on the 20-year U.S. Treasury bond rose 20% to 4.91% on Sept. 27, from 4.08% at the beginning of the quarter. Those high rates, however, also weighed down investment-heavy alternative energy ETFs.  

A bright spot was the potential deregulation of marijuana by the U.S. federal government, which boosted cannabis ETFs. 

The worst-performing ETF was the Invesco Solar ETF (TAN), which lost 25%. Inverse and leveraged funds were excluded as they are not meant to be held over long periods, and funds with fewer than $50 million in assets under management were excluded due to liquidity concerns. 

Best Performing ETFs

Worst Performing ETFs

Rates Dim the Prospects for Solar  

Two of the worst-performing ETFs of the quarter, TAN and the Global X CleanTech ETF (CTEC) have been hammered by high interest rates. 

“The demand environment for our products in the United States has experienced a broad-based slowdown, primarily due to high-interest rates,” said representatives from Enphase Energy, a solar company that is the top holding of both funds, in its most recent quarterly earnings report. 

Part of the issue could be that solar panels require a large up-front investment to get running, and are therefore sensitive to rises in interest rates. 

The last fund in the bottom performers list, the Global X Blockchain ETF (BKCH), has also suffered as rates have risen. Investments that don’t offer yields, such as gold or bitcoin, become relatively less attractive as yields rise. 

Current Events Boost Pot, Uranium 

The second and third ETFs on the best performers list have both benefitted from political shifts.  

Marijuana ETFs have jumped during the third quarter as the U.S. Department of Health and Human Services recommended that marijuana be reclassified to a Schedule III, meaning it would be subject to much less restrictive regulation, a boon to the industry which has been legalized on a state level, but not federally. 

Nuclear energy stocks are soaring as the price of uranium has increased by about 25% over the course of the third quarter.  

Gabriel Alpert can be contacted at [email protected].