Friend Fear With ETFs

ETF Trends

Finding some of the worst non-leveraged exchange traded funds this year is not difficult. Not when the S&P 500 is up 29.3% and so many broad market, sector and industry funds are sporting gains in excess of that.

In others words, the worst losers really stick out and this year, that means commodities ETFs. Specifically, precious metals funds. Of the 10 worst-performing non-leveraged ETFs to this point in 2013, all are commodities plays, nine of those are related to precious metals and six of those nine are equity-based funds. [Negative Sentiment Rising for Mining ETFs]

There is a school of thought that buying one year’s worst performers can pay-off handsomely the following year. Think of it as buying fear. “Believe it or not, the end of 2013 is much like recent years as fear is mounting in some unpopular sectors,” writes Larry McDonald for Forbes, highlighting such unloved sectors as gold miners, coal producers and rare earths miners.

Of the three major ETFs tracking those groups, the Market Vectors Coal ETF (KOL) is this year’s “best” performer with a loss of 19.3%. The Market Vectors Rare Earth/Strategic Metals ETF (REMX) is off 31.3% and was reverse split earlier this year and the 54.3% slide for the Market Vectors Gold Miners ETF (GDX) is nothing if not well-documented. [Another Troubling Day for Mining ETFs]

In terms of 2014 potential for those ETFs, McDonald makes an important and accurate point that in 2011 financials were dogs and solar stocks followed suit last year. The Financial Select Sector SPDR (XLF) lost 17.1% in 2011 before gaining 28.4% in 2012. XLF is up 32.5% this year.

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