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Worst Performing ETFs Of The Year

Sumit Roy

By most measures, 2016 has been a good year so far for ETFs. No matter what asset class you look at, most funds are up on the year. In fact, of the 1,900-plus ETFs listed in the U.S. on the market, about 85% of them are in the green on a year-to-date basis.

That leaves another 15%, or some 300 funds, that are down on the year. Rather than ignoring those ETFs, perhaps investors should take a look at closer look at them to see if there are any opportunities available at discount prices.

After all, past performance isn't necessarily indicative of future performance, and this year's losers could turn out to be next year's winners.

Volatility Products Halve In Value

The worst-performing ETFs of the year so far are three products that track the CBOE Volatility Index (VIX): the iPath S&P 500 VIX Short-Term Futures ETN (VXX); the VelocityShares Daily Long VIX Short-Term ETN (VIIX); and the ProShares VIX Short-Term Futures ETF (VIXY).

Each of those three exchange-traded products is down more than 55% on the year. In that time period, near-month futures contracts on the CBOE Volatility Index (VIX) have fallen about 15%―from 18.5 to 15.9.

The trio of VIX ETF products has underperformed the actual VIX due to roll costs from contango, which eat into the returns of futures-based exchange-traded products.

That's not unusual. VIX futures are often in contango, and products tied to the VIX have been poor performers over long time periods. Thus, this isn't an area where long-term investors should be looking for bargains―though VIX products remain viable trading vehicles for those with short time horizons.

 

SunEdison Bankruptcy Hits Solar ETFs

Another trio of ETFs to fall out of favor this year is the VanEck Solar Energy ETF (KWT), the Guggenheim Solar ETF (TAN) and the PowerShares WilderHill Clean Energy Portfolio (PBW).

The downturn in renewable energy stocks has knocked about 35% off the value of KWT and TAN this year, and 18.6% off the value of PBW.

The collapse of once-high-flying solar giant SunEdison in April played a big part in turning investors away from solar stocks. Once the world's largest renewable energy company, SunEdison filed for bankruptcy in April after its debt-fueled business model proved to be unsustainable.

The bankruptcy of SunEdison has fueled concerns that other solar companies may also be overleveraged, overshadowing the bullish demand fundamentals of the industry.

Data from Bloomberg New Energy Finance shows that globally, demand for renewable power will continue growing at a breakneck pace. Annual solar and wind additions may reach almost 160 gigawatts in 2018, up from 130 gigawatts this year.

In the long run, that's good news for renewable energy companies, and may be what fuels a recovery in ETFs like KWT, TAN and PBW.

Underperforming Country ETFs

The rest of this year's worst-performers list features an eclectic mix of funds, several of which are single-country ETFs. The Global X MSCI Nigeria ETF (NGE) lost 33.3% on a year-to-date basis, the worst performance among any single-country fund.

Africa's largest economy fell into a recession this year amid the downturn in the important oil industry and unrest in the oil-rich Niger-Delta region. Attacks on oil installations by rebels pushed oil production in the country to a 27-year low in August.

Nigeria's oil-led downturn is likely to weigh on NGE for a while longer. But for investors bullish on the long-term economic growth story for Africa and frontier markets more broadly, this year's sell-off in NGE may be a buying opportunity worth considering.

 

Meanwhile, the WisdomTree Japan Hedged Financials Fund (DXJF), down 24.2% on the year, is the worst performer among battered Japan equity ETFs. A surging yen, negative interest rates and waning confidence in Abenomic's ability to reinvigorate the Japanese economy have combined to push down Japanese stocks this year. Negative interest rates in particular hurt the big banks that make up DXJF.

Another Asia-focused fund to drop significantly this year is the VanEck Vectors ChinaAMC SME-ChiNext ETF (CNXT). The top-performing ETF of 2015, CNXT's 23.1% loss in 2016 clearly illustrates that old market adage: "Past performance isn't indicative of future results."

Though China hasn't been dominating the financial headlines like it did late last year and early this year, the world's second-largest economy continues to slow, putting pressure on the country's stock market. Most of the losses in CNXT and the Deutsche X-trackers Harvest CSI 500 China-A Shares ETF (ASHS) ―which is down 18.2% this year―came in January, when markets across the world were panicking about China and oil.

Finally, Italy is another country that's been hammered this year. The iShares Currency Hedged MSCI Italy ETF (HEWI) and the iShares MSCI Italy Capped ETF (EWI) lost 19.6% and 18.5%, respectively, year-to-date. In addition to “Brexit”―which has weighed on European stocks across the board―Italian stocks have been hit particularly hard due to concerns about the health of the country's banks.

Monte dei Paschi di Siena was recapitalized in August after stress tests showed that the Italian bank's capital would be completely wiped out in an adverse scenario.

Wheat At 10-Year Low, Biotech Down On Election Fears

Rounding out the worst-performers list for 2016 are the Teucrium Wheat Fund (WEAT) and the BioShares Biotechnology Clinical Trials Fund (BBC). Record production of wheat pushed prices for the grain to a 10-year low this week.

At the same time, biotech stocks are down notably this year amid concerns about increased regulations, pricing pressure and headline risk from the upcoming U.S. presidential election.

For a full list of this year's worst-performing ETFs, see the table below:

 

 

 

Contact Sumit Roy at sroy@etf.com.

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