For most investors, 2009 has been a very good year, with a surge
in liquidity leading almost all asset classes to big gains. As many
national economies emerged from recession, investors regained their
appetite for risk, sending emerging markets funds through the roof
(these funds dominated the list of the
Top Ten Performing Equity ETFs
). But less risky asset classes also jumped in 2009, and the vast
majority of exchange-traded products are heading towards the finish
line well in the black on the year.
But some funds have not been nearly so fortunate. Although this
year has been one of the best in recent memory for most investors,
several ETFs missed out on the surge and instead posted big losses.
Beyond inverse and leveraged ETFs, the ten worst performing ETFs of
10. PowerShares 1-30 Treasury Ladder (
As risk tolerance has returned to the markets this year, many safe
havens that performed relatively well in 2008 have seen declines in
value. PLW invests in approximately 30 equally-weighted Treasury
issues with various time until maturity, ensuring that it spreads
exposure across the yield curve.
Unfortunately for this fund, Treasuries fell out of favor in
2009 as interest rates remained at record low levels and investors
looked to tilt portfolios away from low-risk assets. PLW is down
8.5% so far in 2009.
9. iPath Dow Jones-UBS Energy Subindex Total Return ETN (
This exchange-traded note is linked to an index composed of futures
contracts on four energy-related commodities: crude oil, heating
oil, natural gas, and unleaded gasoline. Crude oil prices have
surged in 2009, with prices per barrel rising from $35 to more than
But increases in spot prices for several of these commodities
have not translated to gains for JJE, as the nuances of a
futures-based investment strategy has weighed on the fund. JJE has
lost about 14% in 2009, making it one of the biggest
disappointments to investors.
8. ELEMENTS MLCX Grains Index Total Return ETN (
Most commodity investors elect to achieve exposure to this "fourth
asset class" through diversified funds that include exposure to a
number of different resources. But there are also a number of
commodity products that focus exclusively on one commodity, ranging
from sugar to gold to lead.
Most commodity prices have surged in 2009, boosted by a weak
dollar and broad economic recoveries. But wheat has been one of the
exceptions, and the ELEMENTS MLCX Grains Index Total Return ETN (
) has lost about 16% in 2009.
7. iPath DJ-UBS Livestock Total Return ETN (
Livestock has been another weak pocket of the commodities market in
2009. Despite overarching concerns about long-term supply shortages
as emerging economies continue to expand, most food prices failed
to deliver material returns this year.
The cleverly-named COW, which invests in lean hogs and live
cattle, has lost about 20% in 2009. Also among the year's worst
performers is the UBS E-TRACS CMCI Livestock Total Return ETN (
), which is down about 15.8% year-to-date.
6. iPath Global Carbon ETN (
Given the focus on climate change regulations that has dominated
global headlines in recent weeks, many investors likely would have
expected a fund that measures the performance of carbon-related
credit plans to be among the year's best performers. But the iPath
Global Carbon ETN (
) is actually among the year's worst, losing -19.7%
The index to which this ETN is linked may expand significantly
in coming years as new legislation is introduced, but currently
includes two carbon-related credit plans: the European Union
Emission Trading Scheme and Kyoto Protocol's Clean Development
5. PowerShares Dynamic Banking (
Many ETFs in the Financials Category have surged in 2009 (the
broad-based XLF is up more than 15% on the year), beginning to
reclaim some of the ground lost during a disastrous 2008. But not
all funds in this group have delivered big returns to
The PowerShares Dynamic Banking (
) has lost almost 22% on the year, as many of the component
companies have endured a tumultuous stretch. PJB invests in about
30 individual financial firms, ranging from giants like JP Morgan
and Wells Fargo to smaller stocks such as Dime Community Bancshares
and Bank of Hawaii.
4. SPDR KWB Regional Banking ETF (
This ETF further demonstrates the potholes that exist on the
financial sector's long road to recovery. While banking behemoths
with multi-national operations have flourished in 2009, many of the
smaller players have struggled to find their footing. Regulators
closed at least 140 banks
already in 2009, costing the Federal Deposit Insurance Corp.
hundreds of millions of dollars. While the pace has slowed
considerably, closures have continued to mount in recent weeks,
indicating that the financial industry is yet to fully cleanse
itself of toxic asset exposure.
KRE has lost about 22.2% in 2009. Also taking it on the chin in
2009 was the iShares Dow Jones U.S. Regional Banks Index Fund (
), which has lost more than 10%.
3. Vanguard Extended Duration Treasury ETF (
Despite the emergence of several "green shoots," it is evident that
the current recovery is in a very fragile state. While developed
and emerging economies around the world have begun raising interest
rates, the U.S. Federal Reserve has indicated on several occasions
that rates will remain at record lows for several quarters to come.
These developments, along with a general shift out of Treasuries in
favor of more risky assets, has weighed on long-term government
EDV has lost 31.4% in 2009, while the iShares Barclays 20+ Year
Treasury Bond Fund (
) and SPDR Barclays Capital Long Term Treasury ETF (
) have shed 19.5% and 9.9%, respectively.
2. United States Natural Gas Fund (
One of the most popular ETFs of 2009 has also been one of the worst
performers. The United States Natural Gas Fund (
) has seen cash inflows of more than $5.4 billion this year, and
regularly trades more than 30 million shares in a single day. But
much of the cash that has flowed into this fund has disappeared, as
UNG has lost about 55% so far in 2009 and now has a market
capitalization of about $4.7 billion.
UNG's tough year is perhaps the best example of the complexities
that accompany many exchange-traded commodity products. The spot
price of natural gas has
in 2009, but a fund that invests primarily in near-month futures
contracts on the commodity has lost more than half of its value.
For a closer look at how contango can erode returns to commodity
What's Wrong With UNG?
The iPath DJ-UBS Natural Gas ETN (
) hasn't fared much better, declining 52% so far this year.
1. iPath S&P 500 VIX Short-Term Futures ETN (
While correlations between most asset classes have strengthened in
recent years, there remain some alternative investments that
exhibit an inverse relationship with equity markets. Volatility
ETNs are a relatively new innovation, introduced after the CBOE
Volatility Index (better known as the VIX) surged to all time highs
during the chaos of late 2008.
As some degree of normalcy has returned to the markets in 2009,
volatility indicators have returned to historical averages, and
futures-based investment strategies including these benchmarks have
suffered tremendously. Since its inception in late January, VXX has
lost more than 65%, earning it the top spot on the list of the
year's worst performing ETFs.
No positions at time of writing.
On the Merits of a Fixed Income Proxy Fund