No one beats themselves up more than Warren Buffett when it comes to analyzing investment mistakes made in the past. It’s whether you learn from those mistakes that counts, whether we’re talking about a stock or an exchange-traded fund (ETF).
I can assure you, the Oracle of Omaha does just that. It’s why he’s one of the world’s wealthiest. I’m not sure I’ve ever seen him make the same mistake twice.
Case in point, Dexter Shoe.
In late August I wrote about Berkshire Hathaway Inc.’s (NYSE:BRK.A, NYSE:BRK.B) rumored investment in Sprint Corp (NYSE:S). I suggested that putting any money into Sprint would be worse than Dexter Shoe, a deal that he laments to this day because the company used Berkshire stock to buy what became a worthless company.
Buffett bought Dexter Shoe in 1993; he still talks about it.
Well, back in February, I called a trio of ETFs the worst in the world, and now it’s time to revisit them to see how they’ve fared and whether I was right about them.
Worst ETFs Revisited: Spirited Funds (WSKY)
Expense Ratio: 0.6%
No matter my opinion about Spirited Funds/ETFMG Whiskey & Spirits ETF (NYSEARCA:WSKY), you have to love its trading symbol, which tells investors exactly the type of investments it makes.
In February, I came to the conclusion that its management fee of 0.75% was too high (it’s since been lowered to 0.6%) given you could invest in Diageo plc (ADR) (NYSE:DEO) directly for the price of one stock trade.
Since then, WSKY is up 21%, more than double the 10% return from the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) over the same period. Kudos to those who bought despite my protestations. You’ve done well.
The one thing I failed to acknowledge in my assessment of WSKY is that very few of the stocks held in the portfolio are listed on the NYSE or NASDAQ (two of the top 10) making them hard to come by for the average retail investor.
So, from that perspective, it’s worth paying a little more to gain easy access to these companies, especially if you buy the theory that the demand for whiskey and spirits is at the beginning of a 25-to-40-year supercycle that will enrich shareholders of some of these companies for decades to come.
Do I think still think it’s one of the world’s worst ETFs? I don’t, but what I would say, is that WSKY is only for high-net-worth investors who want to complement their core portfolios with a play on consumer demand.
It’s still expensive in my view but not outrageously so for what it can deliver. Unfortunately, with only $6 million in net assets, it might not matter what I think.
Worst ETFs Revisited: USCF Restaurant Leader Fund (MENU)
Expense Ratio: 0.65%
Hurricane Irma didn’t do this new ETF that launched last November any favors. Canaccord analyst Lynne Collier has identified eight restaurant brands that have at least 10% of their restaurants in the state of Florida and will be severely affected by closures in both the third and fourth quarters.
Four of the eight identified by Collier are held by the USCF Restaurant Leaders Fund (NYSE:MENU), which isn’t good news when you consider MENU is down 5.6% over the last three months.
My biggest problem with MENU when I wrote about it in February was that it had ETF Deathwatch written all over it. Barely a month after the ETF’s inception, BITE, another appropriate symbol for a restaurant ETF, threw in the towel with just $2 million in assets over 14 months in operation.
Menu has just $1.7 million after 10 months. If it’s not one of the world’s worst ETFs, it’s right up there.
Worst ETFs Revisited: The Wear ETF (WEAR)
Expense Ratio: 0.85%
My biggest complaint with The WEAR ETF (BATS:WEAR), which was launched last December, is that it was essentially a large-cap tech fund charging 0.85%, an outrageous amount for a passively managed ETF.
The truth is, it’s a multi-cap ETF where the average market cap of its 58 holdings is $11.6 billion and large caps account for 47%, mid caps another 25% and small caps the remainder.
So, I got that wrong.
As for performance, it’s up 17% year to date, approximately the same return as the MSCI ACWI Index.
How has it done against tech ETFs?
Well, to compare apples-to-apples, I’ve selected the Guggenheim Invest S&P 500 Eql Wght Tech (NYSEARCA:RYT), which is also equal-weighted like WEAR. However, it’s not a completely accurate comparison because its average market cap is $31.8 billion, or almost three times larger. RYT is most definitely a large-cap tech fund.
Year to date, RYT is up 23%, 600 basis points better than WEAR at half the annual management fee.
It’s not the worst ETF in the world but it’s definitely way too expensive for most investors to consider.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
