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4 Worst ETF Areas of Q4

Sanghamitra Saha
This marks the lowest monthly total for ADP since February 2010, when private-sector jobs were just starting to emerge from deep gouges month after month.

The fourth quarter of 2018 was horrible for Wall Street with the key indexes losing in double digits. A flattening yield curve causing recessionary fears in the United States led to this massacre. And why not? The return of global growth concerns pulled down long-term treasury yields meaningfully while a hawkish Fed kept pushing short-term rates higher.

While six out of the 11 sectors in the S&P 500 have so far undergone double-digit losses, per an article published on Wall Street Journal, below we highlight a few key ETF areas that have lost around 30% so far in the quarter (as of Dec 19, 2018).

Energy

Concerns over rising output amid softer-than-expected U.S. sanctions on Iran and falling demand from global growth worries have weighed on oil prices in the fourth quarter.United States Oil USO haslost about 35%in the quarter. Even the fresh output cut decided by the OPEC and Russia in early December for the first six months of 2019 could not save the liquid commodity (read: Is Fresh OPEC+ Output Cut Enough to Boost Oil & Energy ETFs?).

SPDR S&P Oil & Gas Equipment & Services ETF XES (down 45.2%), Invesco S&P SmallCap Energy ETF PSCE (down 44.4%), VanEck Vectors Oil Services ETF OIH (down 41.4%) and Invesco Dynamic Oil & Gas Services ETF PXJ are of the worst-performing energy ETFs of the fourth quarter.

Marijuana

Marijuana stocks and ETF were hot trades in 2018 due to growing efforts for legalization, both for medical and recreational usages, it saw a volatile phase in November on bubble fears and some downbeat earnings releases. ETFMG Alternative Harvest ETF MJ is down 35.5% so far this year (as of Dec 19, 2018) (read: What Went Wrong With the Marijuana ETF on Wednesday?)

Some industry experts are of the view that overvaluation is a threat to the space. It does have bright long-term prospects. But things will probably shore up slower than anticipated. Probably this is why despite going through the roof in mid-September, the fund succumbed to a steep slowdown in December (read: Will Cannabis ETFs be on a High Again?).

Biotech

This fund follows an index, which is equal weighted and is designed to measure the equity market performance of the common stock of U.S. exchange-listed biotechnology companies with a primary product offering that is in a phase 1, phase 2 or phase 3 clinical-trial stage of development.

Being a high-beta and high-growth sector, biotech has been beaten down badly on a broad market rout. Some sector-specific news also played foul. The world's biggest maker of health care products Johnson & Johnson (JNJ) had a tumultuous ride in December on reports that its baby powder contained cancer-causing asbestos.

Also, a federal judge in Texas ruled that President Barack Obama's signature health law — the Affordable Care Act (ACA) or Obamacare — is unconstitutional in December. Virtus LifeSci Biotech Clinical Trials ETF BBC is off 33.2% this quarter (read: Healthcare ETFs Sink on JNJ News, ACA Ruling: What???s Ahead?).

Tech & Media

It is one of the prominent spaces which saw huge selloffs in 2018. Investors should note that tech stocks, particularly FAANGs, were once investors’ darling this year. However, things took a turn, causing a steep slump in Wall Street, in the October-November period. Rising rate worries, overvaluation and U.S.-China trade tensions led to the upheaval (read: 5 Low P/E Tech ETFs for Investors).

Per an article published on Associated Press, technology and Internet-based companies normally see high profit margins. In a rising rate environment, the profitability of such companies will be compromised as they will end up paying higher interests on borrowed money. As a result, AdvisorShares New Tech and Media ETF FNG is down 30.3% in the fourth quarter.

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