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US Stocks' Worst Start to Q4 in Decade: ETF Winners, Losers

Sweta Killa

Wall Street suffered its worst daily drop since late August and was off to the worst start to a quarter in about a decade with two consecutive days of decline. Notably, the S&P Index and Dow Jones logged in a loss of about 3% to start the fourth quarter while the Nasdaq Composite Index shed 2.7%. The decline followed the latest barrage of downbeat economic reports pointing to deeper domestic troubles (read: The Cheapest ETFs for Most Popular Indexes).

The Institute for Supply Management’s purchasing managers index for the manufacturing sector dropped to 47.8 in September, representing the lowest level in more than a decade. Any number below 50 indicates that factory activity is shrinking. Additionally, a private-sector employment report from Automatic Data Processing showed that a modest 135,000 jobs were created in September. Average monthly job growth fell to 145,000 over the past three months from 214,000 in the year-ago quarter. The evidence of a slowdown came amid a persistent Sino-American dispute that has raised recessionary fears.

Further, lingering worries about Britain’s exit from the European Union as well as President Donald Trump’s impeachment inquiry continued to unnerve investors. If these weren’t enough, the World Trade Organization said that trade flows this year are set to increase at the weakest pace since the 2008 financial crisis (read: ETF Market Outlook for Q4 2019).

All these have led to investors’ flight to safety. That said, we have highlighted ETFs that benefited most from the market sell-off to start the fourth quarter and those that lost:

ETF Winners

ProShares VIX Short-Term Futures ETF VIXY – Up 11.4%


Volatility products tend to outperform when markets decline or fear-levels pertaining to the future are high. VIXY seeks to profit from increases in the expected volatility of the S&P 500 as measured by the prices of VIX futures contracts. The ETF focuses on the S&P 500 VIX Short-Term Futures Index, measuring the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration. It has amassed $320.9 million in AUM and charges 85 bps in fees per year. The fund trades in average daily volume of around 2.7 million shares (read: ETF Strategies to Follow as Volatility Seems Underpriced).

AdvisorShares Dorsey Wright Short ETF DWSH – Up 5.7%

With a steep decline in the stock market, this ETF climbed as it adds alpha to an investment portfolio, especially during a bear market. DWSH is an actively managed ETF that short sells U.S. large-cap securities with the highest relative weakness within an investment universe. It holds 100 stocks in its basket and chares higher annual fee of 90 bps. The product trades in lower average daily volume of 27,000 shares and has accumulated $27.3 million in its asset base.

VanEck Vectors Junior Gold Miners ETF GDXJ – Up 3.6%

Gold gained on renewed appeal for safe havens. Being a leveraged play on the underlying metal prices, metal miners experience more gains than their bullion cousins in a rising metal market. GDXJ is a small-cap centric ETF that tracks the MVIS Global Junior Gold Miners Index. Holding 73 stocks in its basket, Canadian firms dominate the fund’s portfolio at 48.5%, while Australia (21.9%) and South Africa (10.2%) round out the top three. The product has AUM of $4.2 billion and charges 53 bps in annual fees. It trades in heavy volume of more than 16.8 million shares a day on average (read: 4 Market-Beating Sector ETFs of the Third Quarter).

ETF Losers

Invesco S&P SmallCap Energy ETF PSCE – Down 7.1%


Oil price hovered near the lowest level in two months as increase in crude inventories and intensified global growth worries added to pessimism over the demand outlook. This has pushed the energy space deep into red to start the new quarter with PSCE being the biggest loser. PSCE provides exposure to the U.S. small-cap segment of the energy sector by tracking the S&P Small Cap 600 Capped Energy Index. It holds 29 stocks in its basket with AUM of $18.9 million. The fund trades in average daily volume of 20,000 shares and charges 29 bps in fees per year. It has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook (read: ETFs to Win as Saudi's New Minister May Seek Same Oil Policy).

iShares U.S. Broker-Dealers & Securities Exchanges ETF IAI – Down 6.3%

The slowing economic growth and an increasingly likely recession had taken a toll on this ETF and will likely continue to do so if sentiments do not improve. This fund offers exposure to the U.S. investment banks, discount brokerages and stock exchange firms by tracking the Dow Jones U.S. Select Investment Services Index. The product currently holds 25 securities with the largest allocation going to the top three firms. It has accumulated $228.3 million in AUM and trades in moderate volume of nearly 23,000 shares a day. The product charges 42 bps in fees per year from investors and has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

Global X Cannabis ETF POTX – Down 5.1%

The fund is struggling on slumping marijuana stocks as these are the high growth stocks, which tends to fall higher than the market at the times of turmoil. This ETF, which seeks to invest in companies across the cannabis industry, tracks the Cannabis Index and holds 25 stocks in its basket. It has accumulated $2 million in its asset base within one month of debut and trades in average daily volume of 5,000 shares. Expense ratio comes in at 0.50%.

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