Worst Performing ETFs 3Q 2019

Earlier this week, ETF.com took a look at the best-performing ETFs of 2019. Today, we’ll run through the other side of the coin, the worst performers so far this year.

As one can imagine, with financial markets generally doing well this year, there aren’t that many ETFs outright cratering. Nevertheless, there is always something underperforming, and when you exclude leveraged, inverse and volatility products, you still end up with more than a dozen ETFs with losses exceeding 15%.

Here are those 15, with returns ranging from -16.5% to -33.1%:

Worst-Performing ETFs Of The Year (excluding leveraged/inverse/volatility)

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

Tech Bets Gone Wrong

When you consider that technology is the No. 1 sector in terms of performance this year, it’s a bit surprising to see a tech ETF headline on the worst-performers list. Bad bets placed by the managers of the AdvisorShares New Tech and Media ETF (FNG) caused it to lose more than 33% of its value this year. In fact, the actively managed ETF performed so poorly that it closed shop last week.

Not too many investors were sad to see it go. FNG only had around $10 million in assets under management on its last trading day.

If anything, FNG is a cautionary tale about active management. When it comes to these products, performance is going to be overwhelmingly dictated by the skill of the managers.

EM Laggards

Also on the worst-performers list is an emerging market (EM) fund, the VanEck Vectors India Small-Cap Index ETF (SCIF). It’s joined by two other EM funds, the Global X MSCI Nigeria ETF (NGE) and the Global X MSCI Pakistan ETF (PAK).

Broadly speaking, 2019 has been a modest up year for emerging markets. The two largest funds in the space, the iShares Core MSCI Emerging Markets ETF (IEMG) and the Vanguard FTSE Emerging Markets ETF (VWO), are higher by 4.4% and 7.7%, respectively.

But as is typically the case, performance among the various emerging markets isn’t uniform. Nigeria and Pakistan, in particular, are two volatile markets with feeble growth prospects.

India is growing much faster, but concerns about the health of the country’s banks and other lenders have dogged returns this year.

Energy Sector Slammed

The group that is most pervasive on the worst-performers list this year is hands down the energy sector. Of the 15 worst performers, 11 of them are energy-related.

From the First Trust Natural Gas ETF (FCG) to the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) to the United States Natural Gas Fund LP (UNG), it’s been a dismal year so far for the energy sector.

Crude prices couldn’t even get a sustained lift from the recent attack on Saudi oil facilities, arguably the worst oil supply disruption in history. The problem is the market is saturated with oil due to the fracking revolution in the U.S. At the same time, demand growth is tepid, with global economic growth slowing.

Put those two together and you have a recipe for weak energy prices. Making matters worse, the long-term outlook for the sector is poor. Climate change concerns translate into less demand for fossil fuels going forward, while a growing emphasis on environmental, social and governance (ESG) investing further curbs the appeal of the energy sector.

Marijuana ETF Deflates

Rounding out the list of worst performers is the ETFMG Alternative Harvest ETF (MJ), the first U.S.-listed marijuana fund. One of the most hyped-up areas of the market earlier this year, marijuana stocks hit the skids in the past few months, as some air has come out of their bubbly valuations.

Recent negative news flow about marijuana vaping-related deaths and execution issues at some of the large Canadian marijuana companies helped prick the bubble.

Still, the push toward legalization in the U.S. will keep this space interesting for the foreseeable future. It’s anyone’s guess if MJ will benefit from that.

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