Worst Performing ETFs Of 2Q 2019

This year’s Teflon market has fooled the naysayers and delivered strong returns for most ETF investors. With the SPDR S&P 500 ETF Trust (SPY) up by more than 17% in a little over six months, it’s been hard to go wrong in the markets.

Earlier this week, we highlighted some of the best of the U.S.-listed ETFs this year. With so many ETFs performing well, it was understandably tough to make the top performers list.

A solar ETF, the Invesco Solar ETF (TAN), with more than 50% returns, and an IPO fund, the Renaissance IPO ETF (IPO), with returns of 35%, bookended the list, but there are countless other funds doing exceptionally well this year.

It’s not surprising then that there aren’t that many funds doing poorly in 2019. In fact, of the ETFs that were around at the end of last year, only about a tenth of them are down on a year-to-date basis.

That group is what we will be looking at in this article, the worst-performing ETFs of the year.

Doomed By Aggressive Bets

As is typically the case, the worst-performing ETFs are either leveraged, inverse or VIX products (or some combination of the three). This year is no exception. The VelocityShares Daily 2x VIX Short-Term ETN (TVIX), the Direxion Daily Semiconductor Bear 3x Shares (SOXS) and the United States 3x Short Oil Fund (USOD) are among the worst-performing ETFs, doomed by their aggressive bets on or against volatile areas of the markets.

Worst Performing ETFs Of 2019 (all-encompassing)

Note: Data measures total returns for the year-to-date period through July 9.

Pakistan ETF Tumbles

The table below strips out the leveraged, inverse and VIX products, resulting in an interesting group of poor-performing funds. These funds, which only take standard long positions with no leverage, have dropped between 4.3% and 16.5% so far this year, underperforming the broader markets.

Worst-Performing ETFs Of 2019 (excluding inverse/leveraged/VIX products)

Note: Data measures total returns for the year-to-date period through July 9.

The Global X MSCI Pakistan ETF (PAK) headlines this inglorious list. Tepid economic growth and a $6 billion IMF bailout that could spur government belt tightening have given investors little reason to bargain hunt in beaten-up Pakistani stocks.

The country’s economy is barely growing above 2%, and there is nothing on the horizon for investors to get excited about, except maybe a downgrade of Pakistani shares by MSCI from “emerging markets” to “frontier markets” status, a move that could ironically spur more inflows into the country’s stocks, according to Bloomberg.
 

Other EM Laggards

Pakistan isn’t the only emerging market country performing badly in 2019. Though the iShares Core MSCI Emerging Markets ETF (IEMG) is up 8.7% on the year, the VanEck Vectors India Small-Cap Index ETF (SCIF), the Global X MSCI Nigeria ETF (NGE) and the First Trust South Korea AlphaDEX Fund (FKO) are all lagging.

Korean stocks, in particular, got hit recently after Japan escalated a trade rift between the two countries.

Commodity Losers

Along with emerging markets, a few commodity ETFs also made an appearance on the worst performers list. The United States Natural Gas Fund KP (UNG), the Breakwave Dry Bulk Shipping ETF (BDRY), the Teucrium Wheat Fund (WEAT) and the Global X Lithium & Battery Tech ETF (LIT) all sagged on a year-to-date basis.

Natural gas prices are at a three-year low as the inexorable rise in U.S. energy production continues, and demand, while also increasing, just can’t keep up.

When Trend Following Goes Wrong

Finally, rounding out the worst performers list are two trend-following ETFs, the Pacer Trendpilot U.S. Mid Cap ETF (PTMC) and the VictoryShares U.S. Discovery Enhanced Volatility Wtd ETF (CSF).

The two funds provide exposure to U.S. midcap and small cap stocks, respectively, but occasionally shift to cash positions when markets begin to trend lower. This toggling between stocks and cash ideally limits downside when markets are dropping, while preserving upside when they are rising.

But since the market top last October, the two ETFs got hit by the market sell-off, without benefiting from the rally that followed.

That is the peril of mechanical, trend-following strategies.

​Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2