Worst Performing ETFs: 2Q 2020

For a year in which the S&P 500 is down nearly 9% on a year-to-date basis, things sure don’t feel all that bad. In fact, based on where things stand now, investors probably feel like they dodged a bullet. The economy is in the midst of its worst contraction in the postwar era and unemployment is approaching Great Depression levels. When you put it like that, down 9% is a win.

But while the S&P 500 and ETFs linked to U.S. stocks haven’t done that badly, the same can’t be said for all ETFs. Pockets of the U.S.-listed exchange-traded fund universe are doing horribly—most notably, any product tied to crude oil.

Oil and energy ETFs are among the worst performers this year, with losses upward of 80%. They’ve dominated on the downside, making up nine of the 10 worst-performing ETFs of 2020, and 13 of the 20 worst performers.

Below, we run through the funds that make up this unenviable group.

USO Annihilated
Coming in at the top of the worst performers list is a fund that’s been in the headlines a lot this year, for all the wrong reasons: the United States Oil Fund LP (USO). Despite being the beneficiary of a whopping $6.5 billion of inflows in 2020, the fund only has $3.7 billion in assets currently. The ETF’s 80% year-to-date loss has wiped out a lot of that new money, stunning many retail investors who hoped to use the fund to capitalize on any potential rebound in oil prices.

Oil prices have indeed rebounded, from their worst levels below zero to $25/barrel as of this writing. But a steep contango in the futures curve has prevented USO investors from participating in most of that upside.

Meanwhile, though they haven’t seen the wave of inflows that USO has, other oil-tracking ETFs have seen similarly abysmal performance. The ProShares K-1 Free Crude Oil Strategy ETF (OILK), the Credit Suisse X-Links Crude Oil Shares Covered Call ETN (USOI) and the United States Brent Oil Fund LP (BNO) each shed more than 63% on a year-to-date basis.

Worst Performing ETFs Of 2020 (ex. leveraged/inverse products)

Data measures total returns for the year-to-date period through May 7

Energy Service ETFs Fare Poorly
ETFs that track oil futures took the most direct hit from oil’s demise, but products that hold stocks of companies within the energy sector haven’t fared much better. The worst among them are ETFs that target the “picks and shovels” of the energy sector: energy service companies. The SPDR S&P Oil & Gas Equipment & Services ETF (XES), the iShares U.S. Oil Equipment & Services ETF (IEZ) and the VanEck Vectors Oil Services ETF (OIH) each dropped more than 61% so far in 2020.

The InfraCap MLP ETF (AMZA), an actively managed fund that holds energy infrastructure stocks, like pipeline and storage operators, has performed just as poorly, losing more than 60% in the period.

Non-Energy Laggards
Outside of energy, the worst-performing ETF is the Breakwave Dry Bulk Shipping ETF (BDRY), down 70% on the year. As a product that holds dry bulk freight futures contracts, BDRY has been hammered as economies around the world contract, reducing the need to ship dry bulk cargo.

Another non-energy ETF to lose more than half its value this year is the US Global Jets ETF (JETS). Like USO, this is a fund that has been popular with bottom-fishing retail investors; year-to-date inflows total $659 million.

Also like USO, there has been very little bounce in the fund thus far. Stocks of companies in the airline industry are stuck near their lows as passenger traffic struggles to rebound from rock bottom levels. Based on the latest estimates, the number of passengers on U.S. flights is still down 90% or more from year-ago levels.

Brazil ETFs Halved
Rounding out the list of the worst-performing ETFs of the year are a handful of Brazil-focused funds. The iShares MSCI Brazil Small-Cap ETF (EWZS), the VanEck Vectors Brazil Small-Cap ETF (BRF) and the iShares MSCI Brazil ETF (EWZ) have each fallen by 52% or more year to date.

Two factors may be playing a part in Brazil’s underperformance this year. One, contrary to other countries that have managed to “flatten their curves,” the number of coronavirus cases in Brazil is still rising steeply. At the same time, corruption allegations against the Brazilian president and others close to him have once again injected political risks into a country that has frequently faced scandal at the highest levels.

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