With just a few weeks left in 2019, now is the time when year in review stories of all stripes start appearing. Some of these articles are bound to be positive and others, well, let’s just say they won’t be full of holiday cheer.
The burgeoning exchange-traded funds landscape, now home to more than $6 trillion in combined assets under management on a global basis, is fertile territory for such pieces. Recently, I examined some ETFs whose ability to survive could become a legitimate issue in 2020.
That sets the stage for what will be examined: three of the worst ETFs of 2019; a dubious distinction to be sure when considering the S&P 500 is higher by 26% year-to-date and other benchmarks are residing near record highs.
In the search for some of the worst ETFs of 2019, I excluded leveraged funds because due to the daily reset mechanism associated with those products, geared ETFs often produce dismal long-term performances, even when their underlying indexes are going up.
Excluding leveraged funds significantly reduces the amount of qualifiers for the list of worst ETFs of 2019, but here are few that have been outright duds this year.
Worst ETFs in 2019: ETFMG Alternative Harvest ETF (MJ)
Expense Ratio: 0.75%
The ETFMG Alternative Harvest ETF (NYSEARCA:MJ) is down almost 32.50% this year and hasn’t closed above its 200-day moving average since the second quarter, but let’s be fair to MJ. Sure, the cannabis fund is one of the worst ETFs of 2019, but that sentiment extends to all the marijuana ETFs, all of which except MJ debuted this year.
MJ is the oldest and largest cannabis ETF in the U.S., but its peers, each of which came to market in April and later, are scuffling, too.
The Cambria Cannabis ETF (CBOE:TOKE) and the AdvisorShares Pure Cannabis ETF (NYSEARCA:YOLO), two actively managed funds, are lower by 40% and 52.55%, since inception. The Global X Cannabis ETF (NASDAQ:POTX) has bled 38% of its value in less than 90 days on the market.
The point is, with the likes of Aurora Cannabis (NYSE:ACB), Canopy Growth (NYSE:CGC) HEXO Corp (NYSE:HEXO) and other well-known cannabis stocks faltering, it’s not surprising that many of this year’s worst ETFs are marijuana funds.
Is it possible that MJ and friends will be among the worst ETFs of 2020? Yes, but these funds could also be among the most compelling redemption stories, particularly if, as expected, legal cannabis starts separating the legitimate growth stories from the weakest links.
iShares MSCI Chile ETF (ECH)
Expense Ratio: 0.59%
Geopolitical upheaval explains the iShares MSCI Chile ETF’s (CBOE:ECH) year-to-date loss of nearly 21%. Putting ECH’s status as one of the worst ETFs this year into context, the S&P Latin America 40 Index is up almost 7%, while the MSCI Emerging Markets Index is higher by 10%.
Chile, a country that a history of strong-handed dictatorships, was believed to have shed that image and was for years seen as one of the most democratic and transparent nations in Latin America, often making it a favored destination in the region for global investors. The still ongoing demonstrations there may have irrevocably tarnished the country’s once pristine image.
The government there is trying to prop up the economy, but that won’t be enough to prevent ECH from being among the worst ETFs of 2019. Moreover, data suggest the protests are having an impact on the economy.
“Finance Minister Ignacio Briones slashed the official forecast for economic growth this year to 1.4% from 2% just a month ago, and he put next year’s expansion at 1% to 1.5% instead of its 2.3% estimate previously,” according to Reuters.
First Trust Natural Gas ETF (FCG)
Expense Ratio: 0.60%
The energy sector is the worst-performing group in the S&P 500, so it would stand to reason that some of the funds tracking the group would be among the worst ETFs. The First Trust Natural Gas ETF (NYSEARCA:FCG) certainly is with a loss of 28.10%. That compares very poorly with the modest year-to-date gain offered by the Energy Select Sector SPDR (NYSEARCA:XLE).
Natural gas burns cleaner than crude oil, but it’s still considered a fossil fuel and that has it in the crosshairs of state and local governments that are moving toward cleaner alternatives. Further hampering FCG is that those cleaner alternatives are becoming less expensive to produce and use.
Some of the other funds highlighted here could shed their worst ETF status in 2020, but history says FCG is unlikely to do so. This year will mark the seventh straight year in which FCG has lagged XLE and the sixth year in seven it has trailed the S&P 500. Bottom line: the juice isn’t worth the squeeze with this natural gas fund.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.