The Worst Performing ETFs of 2023

While financial media are talking about the best-performing ETFs of 2023, investors are wise to make note of the worst. 

Whether this knowledge is for purposes of trend seeking, portfolio rebalancing, tax-loss harvesting or identifying deep value ideas for 2024, the worst-performing ETFs have a story to tell. 

For 2023, utilities and energy ETFs have earned the unfavorable distinction of putting up the worst performance of the year. While the utilities produced the lowest broad sector returns year-to-date, the worst-performing ETFs were in the oil and gas industry within the broader energy sector. 

The utilities sector, as measured by the Utilities Select Sector SPDR Fund (XLU), fell nearly 6% in 2023 through Dec. 14, and the energy sector, as measured by the Energy Select Sector SPDR Fund (XLE), declined 2.5%. 

Although logging their worst year since 2008, utilities ETFs are climbing back. Since its October lows, XLU is up more than 17%, as investors appear to be rotating out of fixed-income funds, such as Treasury ETFs, and into traditional dividend-producing stocks. 

Natural Gas ETFs Performed the Worst in 2023 

But when we drill down to the industry level within the energy sector, we can see that natural gas ETFs were the worst performers of 2023. For example, the United States Natural Gas Fund LP (UNG) fell by more than 60% in the year, which is a much steeper decline than energy’s 2.5% drop. 

Outside of traditional ETFs, the worst performers were inverse funds like the Simplify Tail Risk Strategy ETF (CYA) and the ProShares Ultra Bloomberg Natural Gas (BOIL), down 97% and 93% for the year, respectively. 

Oil & Gas ETFs in 2024 

The drag on the energy sector, as well as the natural gas sub-sector, has been primarily one of high supply and lower-than-expected demand in 2023. Potential for a slower economy could pose more challenges for oil and gas in 2024. 

Despite potential headwinds for oil and gas in 2024, the Organization of the Petroleum Exporting Countries, or OPEC, maintained its forecast for global oil demand, which is that it will grow by 2.2 million barrels a day next year.  

“As 2023 draws to an end, the OPEC Secretariat remains cautiously optimistic about the fundamental factors affecting oil market dynamics in 2024,” the cartel reported. 

It’s likely that “cautiously optimistic” is an approach many investors will use when structuring their portfolios for 2024.