Worst Performing ETFs So Far In 2014

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Equities ETFs have struggled so far this year, in a reversal of what was a stellar performance in 2013 that sent the S'P 500 to new record highs. But now that many are seeing a correction in the U.S., nowhere has the downward pressure been more evident than in emerging markets.

With the Federal Reserve continuing to taper quantitative easing, emerging markets are feeling the pinch, as capital flows favor developed equities, and economic growth in many of these nations slows down.

Below we look at some of the worst-performing ETFs year-to-date, listed in ascending order.

 

8. The iShares MSCI Chile Capped Investable Market ETF ( ECH | C-97 ) has slid 9.35 percent year-to-date.

The fund is the only ETF on the market today to focus exclusively on Chile. It tracks a market-cap-weighted index of Chilean firms that covers the entire market-cap spectrum, and invests in 40 securities.

Like the Chilean equity market, ECH is dominated by large firms, creating a highly concentrated portfolio (60 percent of assets in the top 10 holdings). Investors in ECH get big exposure to utilities, consumer cyclicals and financials, with minimal exposure to health care.

The $280 million fund has a 0.61 percent expense ratio, and trades on average with an 18 basis point spread, putting its overall cost to investors around $79 per $10,000 invested.

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7. The EGShares India Infrastructure ETF ( INXX | F-12 ) is down 9.85 percent year-to-date.

INXX is also a one-of-a-kind fund, being the only ETF in the market to offer focused exposure to India’s infrastructure names. The fund tracks a market-cap-weighted index of 30 of the biggest infrastructure companies operating in India.

The fund, which has been around since mid-2010, has struggled to find sticky assets. After facing more than $22 million in net outflows in the past 13 months, INXX now has less than $15 million in total assets.

It has an annual expense ratio of 0.85 percent, and has an average trading spread of 0.43 percent, putting overall costs of ownership around $128 per $10,000 invested.

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6. The Global X FTSE Andean 40 ETF ( AND | F-21 ) is down 10.03 percent year-to-date.

AND tracks a market-cap-weighted index of firms in Colombia, Peru and Chile, focusing in a region that’s known for being a major exporter of industrial metals.

That regional focus is the reason why AND allocates heavily to basic materials, which represent 17 percent of the portfolio. Still, the fund’s largest sector exposure is financials, at roughly 27 percent.

The fund is relatively expensive to trade—its 60-day average trading spread is clocking in at 132 basis points. Added to an expense ratio of 0.72 percent, it costs investors more than 2 percent a year to own it. But investors have embraced the strategy, pushing AND above the $100 million mark in assets.

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5. The db X-trackers MSCI Brazil Hedged Equity ETF ( DBBR | F-43 ) is also down 10.03 percent year-to-date.

DBBR tracks a market-cap-weighted index of Brazilian firms and hedges out exposure to the local currency, the Brazilian real.

That currency-hedging feature has worked to the fund’s benefit in recent months, protecting U.S. investors from currency-related underperformance, although in the past week, that has not been the case.

As an example, in the past 12-month period, the currency impact on Brazilian equities exposure has meant U.S. investors have underperformed local investors by roughly 16 percentage points, according to our latest currency report. In fact, in 2013, DBBR slid nearly 7 percent, while an equivalent nonhedged portfolio of Brazilian equities dropped more than twice that amount.

But, as currency hedging goes, tides can turn, and in the past week, local Brazilian investors have actually underperformed U.S. dollar exposure, meaning DBBR would also underperform a nonhedged portfolio.

The fund has only $4.1 million in assets, and costs 0.60 percent in expense ratio. DBBR trades with an average spread of 49 basis points, so it costs investors roughly $109 per $10,000 invested to own it. Nearly a third of the portfolio is allocated to financial names.

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4. The iShares MSCI Brazil Capped ETF ( EWZ | C-97 ) is down 10.43 percent year-to-date.

EWZ is the largest Brazil equities ETF, with more than $4 billion in assets. The fund tracks a market-cap-weighted index of Brazilian firms of all sizes in a portfolio comprising 70 names.

The Brazilian equity market has been under pressure in the face of an economy that’s struggling to spur growth. So far this year, the Brazilian Bovespa—the country’s main stock market—has slid more than 6 percent.

EWZ is highly liquid, trading more than $600 million on average every day, with an average spread of only 2 basis points. With an expense ratio of 0.61 percent, EWZ costs investors roughly $63 per $10,000 invested.

About 30 percent of the fund is allocated to financials, even if its biggest holdings are oil giant Petrobras and Vale.

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3. The Market Vectors Russia Small-Cap ETF ( RSXJ | F-27 ) is down 10.62 percent year-to-date.

RSXJ tracks an index of small-cap Russian securities and depository receipts, and includes only companies that generate at least 50 percent of their revenues in Russia.

That methodology translates into a portfolio of 27 holdings that is nearly a third allocated to companies domiciled or listed outside of Russia.

Industrials are the fund’s biggest sector allocation, at 19 percent, followed by energy, with nearly 17 percent of the pie.

RSXJ has only $18 million in assets under management, and it trades, on average, with a relatively wide spread—45 basis points as of the last 60 days. That spread cost, added to an expense ratio of 0.71 percent a year, brings the total cost of owning this fund closer to $116 per $10,000 invested.

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2. The Global X FTSE Colombia 20 ( GXG | D-44 ) is down 11.18 percent year-to-date.

GXG track a market-cap-weighted index of the top 20 most liquid companies in Colombia, offering investors one of the most liquid access points to Colombian equities in an ETF wrapper.

The $89 million fund has an average trading spread of 28 basis points, and average daily volume of more than $1.5 million, both strong metrics for this segment. At 0.68 percent in expense ratio, GXG costs investors roughly $96 per $10,000 invested at current spread levels.

Financials are the fund’s biggest sector exposure, at more than 36 percent of the overall portfolio, but GXG’s biggest holding is oil giant Ecopetrol. Energy represents 23 percent of the mix.

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1. The Global X Brazil Consumer ETF ( BRAQ | F-32 ) is down 11.83 percent year-to-date.

BRAQ tracks a modified market-cap-weighted index of Brazilian consumer goods and services companies. The fund is the only ETF in the market today to hone in on Brazil’s domestic consumer segment—the same segment many say is the one that will drive economic growth in that country.

But it’s that finger-on-the-pulse focus that’s largely behind the fund’s underperformance so far this year, as Brazil continues to struggle to spur growth in the current macro environment.

BRAQ owns 32 securities, and costs 0.77 percent in expense ratio. The fund is trading on average with a spread of 46 basis points.

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