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5 Worst ETFs Right Now

Exchange-traded funds are great ... except for these five

By Jeff Reeves, Executive Editor of InvestorPlace.com

http://invstplc.com/1pOCK63

ETF investing has a lot of powerful advantages. The best ETFs offer built-in diversification and allow investors to take responsible bets on sectors and geographic regions to seek outperformance.

best etfs, worst etfsOf course, that only works if you put your money in the best ETFs. The bottom line is that even the advantages of exchange-traded funds can’t save you from losses if you are heavily invested in the wrong ETFs at the wrong time.

Among the ETFs that I think investors should avoid right now are those with exposure to sluggish countries in and around Europe as the region faces a slowdown, as well as long-term bond funds that could come under pressure as rates rise in the next year or two.

Here’s a closer look at the five worst ETFs right now:

Worst Developed Market ETF: iShares MSCI Germany Index Fund (EWG)

best etfs, worst etfsYTD Performance: -9%
Strategy: Germany country fund
Expenses: 0.51%, or $51 on $10,000 invested
Top 3 Holdings: Bayer (BAYRY), Siemens (SIEGY), BASF (BASFY)

The eurozone went on a tear in 2013, but the last few months have turned quite ugly for the region — and for its largest economy, Germany. As such, the iShares MSCI Germany Index Fund (EWG) has crashed over 10% in the last two months on fears that stagnation has returned and that unrest in the Middle East and Russia will heighten headwinds that the struggling European economy faces in the near-term.

Visit the official fund website here.

(Looking for the best ETFs to buy instead? Then click through!)

Worst Sector ETF: Consumer Discretionary Select Sector ETF (XLY)

best etfs, worst etfsYTD Performance: +3%
Strategy: Consumer discretionary sector fund
Expenses: 0.16%, or $16 on $10,000 invested
Top 3 Holdings: Walt Disney (DIS), Comcast (CMCSA), Amazon (AMZN)

Consumer spending is slowly mending, but a lot of stocks that make up the Consumer Discretionary Select Sector ETF (XLY) are in big trouble regardless. Broadly, the retail sector has been torn up by the challenges of e-commerce and disappointing margins. And specific to components like Amazon, top stocks in the XLY have a lot of downward momentum right now. I simply don’t see a high likelihood of outperformance here given the better alternatives and the big need for a host of turnarounds among the XLY fund components.

Visit the official fund website here.

(Looking for the best ETFs to buy instead? Then click through!)

Worst Emerging Market ETF: Market Vector Russia ETF (RSX)

best etfs, worst etfsYTD Performance: -12%
Strategy: Russia country fund
Expenses: 0.71%, or $71 on $10,000 invested
Top 3 Holdings: Lukoil (LUKOY), Gazprom (OGZPY), Magnit (MGJNF)

If you thought Europe was in trouble, check out Russia where Vladimir Putin continues to thumb his nose at the West and saddle his nation with harsher and harsher economic sanctions. If you think that may change soon, just look at the recent politicization of “aid” being sent to Ukraine and the fact that Russia is contending sanctions are actually good for the economy since it bolsters domestic business. Avoid Russia and RSX like the plague until the dust settles.

Visit the official fund website here.

(Looking for the best ETFs to buy instead? Then click through!)

Worst Currency ETF: Guggenheim CurrencyShares Euro Trust (FXE)

best etfs, worst etfsYTD Performance: -4%
Strategy: Euro currency fund
Expenses: 0.4%, or $40 on $10,000 invested
Top 3 Holdings: Euros

See a trend here? After identifying Germany as the worst developed market and nearby Russia as the worst emerging markets, it’s no surprise that the worst currency ETF is the CurrencyShares Euro Trust (FXE). The euro has fallen to a nine-month low in August on a lack of confidence in the eurozone recovery and fears of unrest in among its neighbors causing fallout in Europe. This fund should stay under significant pressure in the near-term.

Visit the official fund website here.

(Looking for the best ETFs to buy instead? Then click through!)

Worst Bond ETF: iShares 20+ Year Treasury Bond ETF (TLT)

best etfs, worst etfsYTD Performance: +15%
Strategy: Long-term bond fund
Expenses: 0.15%, or $15 on $10,000 invested
Top 3 Holdings: U.S. Treasury Bonds

From the department of “past performance does not equal future returns,” investors need to turn a blind eye to the big outperformance of the iShares 20+ Year Treasury Bond ETF (TLT) in 2014 and focus on the long-term risks. Namely, the Federal Reserve is committed to raising rates in the next year or two, and the 60 basis points shaved off the 10-year Treasury note in 2014 simply isn’t sustainable. I’m not saying you should abandon bonds, particularly if you’re an older investor concerned with income … but be aware of the big risk rising rates pose to long-term bond funds.

Visit the official fund website here.

(Looking for the best ETFs to buy instead? Then click through!)

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.


Article printed from InvestorPlace Media, https://investorplace.com/2014/08/5-worst-etfs-right-now/.

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