As is the norm at the end of each year, investors take stock of their wins and losses. Included in this forensic exercise is a look at the year ahead. Whether you’re looking for ETFs to buy or individual stocks, one possible strategy is to purchase investments that performed poorly in the year that’s just passed.
In 2021, the S&P 500 is up around 27%. That’s one of the best years on record. To find ETFs to buy after such an impressive performance by the broader markets isn’t going to be easy.
I’ve done a quick screen of the losers in 2021. Out of 2044 ETFs, 661 are down year-to-date, according to Finviz.com. So, approximately two-thirds of this cohort were in positive territory in 2021.
Now, if I only include ETFs down at least 30% YTD at the time of writing, the number of funds meeting this criterion drops to 73. That would be plenty if I didn’t exclude inverse and leveraged ETFs. I won’t recommend investors own these funds. They’re too risky for most investors.
- Renaissance International IPO ETF (NYSEARCA:IPOS)
- iShares MSCI Global Silver and Metals Miners ETF (BATS:SLVP)
- The Emerging Markets Internet + Ecommerce ETF (NYSEARCA:EMQQ)
- Invesco Golden Dragon China ETF (NASDAQ:PGJ)
- Roundhill Streaming Services & Technology (NYSEARCA:SUBZ)
- AdvisorShares Pure US Cannabis ETF (NYSEARCA:MSOS)
- Morgan Creek-Exos SPAC Originated ETF (NYSEARCA:SPXZ)
However, by doing so, I reduce my possibilities to less than 20. Cautiously optimistic, here are my seven ETFs to buy falling 30% in 2021.
ETFs to Buy: Renaissance International IPO ETF (IPOS)
IPOS tracks the performance of the Renaissance International IPO Index. According to the ETFs website, the index is “a portfolio of the largest, most liquid, newly-listed non-U.S. IPOs.”
The ETF’s YTD total return is -30.8%.
When you consider that the top three countries by weight are China (43.4%), Japan (10.6%), and Germany (9.7%), it’s easy to understand why it’s underwater in 2021.
The ETF’s top three holdings are Meituan Dianping (OTCMKTS:MPNGY) at 10.3%, SoftBank (OTCMKTS:SFTBY) at 10.1%, and Haidilao International (OTCMKTS:HDALF) at 4.2%. All three are down significantly in 2021. Fortunately, the ETF caps each holding at 10%. Therefore, the top two will be reduced to 10% at the quarterly rebalance.
At each rebalance, it adds the newest IPOs and removes the oldest. While that’s attractive for gaining exposure to the latest and greatest companies going public, it also means turnover is high. In the most recent fiscal year, IPOS had a 127% turnover, which means it turns the entire portfolio every nine months.
In addition, the ETF charges 0.80% in fees, which might be high for many passive investors.
However, if you look at its performance over the long haul — 5.8% annually since October 2014 — its returns haven’t been abysmal. Consider IPOS a contrarian play to its much bigger and more successful sister fund, the Renaissance IPO ETF (NYSEARCA:IPO). It’s got an annual return of 15.8% since its inception in October 2013.
iShares MSCI Global Silver and Metals Miners ETF (SLVP)
While I’m not a big fan of mining stocks, I think there is an argument to be made for having some exposure to metals mining. SLVP tracks the performance of the MSCI ACWI Select Silver Miners Investable Market Index
The fund’s summary prospectus states: “[The Index is designed] to focus on approximately 25 companies in developed and emerging markets that are involved in silver mining or exploration.”
To make the cut, a company must be primarily a silver miner, although the index will include gold and precious metals miners that meet specific criteria related to silver.
YTD, SLVP has a total return of -30.1%. However, it’s got a much rosier performance over the past three years with an annualized total return of 16.7%.
The ETF’s top 10 holdings account for 71% of its $227 million total net assets. Pan American Silver (NASDAQ:PAAS) is the top holding by a country mile with a weighting of 18.39%, double the next largest holding.
Charging 0.39%, it’s a reasonable fee to pay for anyone looking for some exposure to silver.
ETFs to Buy: The Emerging Markets Internet + Ecommerce ETF (EMQQ)
This ETF started the year slowly, and then the Chinese government stepped in to ruin the e-commerce party. It’s hard to know when the vice-like grip of Chinese regulators will abate.
However, the contrarian in me thinks the crackdown will be good for Chinese internet and e-commerce companies in the long term.
In March 2021, I recommended EMQQ as one of the 10 hottest ETFs to buy. However, down 78% over the past year at the time of my article, I felt the ETF wasn’t performing up to its potential, given the growth in e-commerce.
“The EMQQ tracks the performance of The Emerging Markets Internet & Ecommerce Index, a collection of companies generating a majority of their revenue from the internet and e-commerce and operating in emerging markets,” I wrote on March 8.
“As a result, you won’t see names like Amazon on its holdings list. Instead, you’ve got Chinese, South African, and Latin American companies in the top 10. MercadoLibre’s (NASDAQ:MELI) one of my favorite Latin American companies. It has been since 2013. It continues to grow like weeds.”
Despite the ETFs poor performance in 2021, it has a history of delivering some of the best returns amongst emerging markets equity ETFs.
Consider this the emerging markets’ version of the Dogs of the Dow.
Invesco Golden Dragon China ETF (PGJ)
It shouldn’t come as a surprise that many of this year’s poor performers have a China angle. Unfortunately, 2021 has not been good for those investing in the country’s public companies, but I don’t think you can keep them down for too long.
The Invesco Golden Dragon China ETF tracks the performance of the NASDAQ Golden Dragon China Index, a collection of companies generating a majority of their revenue from the People’s Republic of China.
The difficulty with this ETF is that the 97 components of the fund are U.S.-listed. As more companies like DiDi Global (NYSE:DIDI) delist from the U.S. and relist in Hong Kong, that puts downward pressure on its holdings. DIDI stock lost 20% when it announced its delisting in early December.
Sometimes, some of the best opportunities are dressed up as problems. Currently, investors view this migration as a negative. But, ultimately, I’m sure the U.S. and China can figure out how to work together to regulate publicly-traded companies.
In the meantime, PGJ’s top 10 holdings — which account for 64% of its $190.4 million in total net assets — are made up of innovative companies that will deliver for shareholders in the future.
Down 43.5% YTD, PGJ has delivered annual returns over 30% in three of the past five years. So it’s down, but not out.
ETFs to Buy: Roundhill Streaming Services & Technology (SUBZ)
If I told you at the beginning of the year that a new ETF would launch, providing investors exposure to quality companies such as Walt Disney (NYSE:DIS), Netflix (NASDAQ:NFLX), and Roku (NASDAQ:ROKU), you probably would have said: “tell me more.”
Roundhill launched SUBZ in February. Actively managed, it invests in 38 companies that are in some way related to streaming services. The pandemic has brought these companies to the forefront. Now that the omicron virus is taking control, it’s highly likely that streaming will once more reenter investor consciousness.
Sure, SUBZ is down more than 30% since February, but that’s where the opportunity lies. Not every one of the components that’s performing poorly in 2021 — ROKU is down almost 39% YTD — is going to stay down for much longer.
“Media streaming continues to grow rapidly as more consumers abandon traditional media and subscribe to a select number of streaming services,” said Roundhill Investments Portfolio Manager Mario Stefanidis in the fund’s February press release. “This transition, accelerated over recent years, has taken place across multiple industries including video, audio, and even gaming,”
I’m a big believer in Roku and the rest of the names in the ETFs portfolio.
The fund’s Investor Deck does a good job highlighting some of the trends working in its favor. These include the increased use of streaming and subscriptions by consumers combined with an ongoing desire to cut the cord and a global pursuit of quality internet.
I believe the ETF is a victim of unlucky timing. Five years from now, I’ll be shocked if SUBZ hasn’t gained a lot more assets and performed up to its expectations.
AdvisorShares Pure US Cannabis ETF (MSOS)
If there’s a segment of the economy that’s gotten the best of me when it comes to prognosticating winners and losers, hands down, it would have to be the cannabis industry, and I don’t believe I’m alone.
As with EMQQ, MSOS was on my March list of 10 hottest ETFs to buy.
Some of the reasons I liked it at the time include the fact it is actively managed, owns Innovative Industrial Properties (NYSE:IIPR) with a current weighting of 8.39% (fourth-largest holding), and invests in several U.S. multi-state operators, who’ve been able to get a leg up on some of their cannabis competitors north of the border in Canada.
Despite all the good things going for it, MSOS has a 2021 YTD total return of -32.8%, down 60% relative to the S&P 500. That’s the definition of opportunity cost.
To the ETFs credit, it’s managed to maintain its total assets above $1 billion, despite the poor performance. That tells me that someone out there believes cannabis stocks are ultimately headed back up. Of course, when that happens is anyone’s guess.
At 0.73%, it’s not cheap, but then again, compared to other actively-managed ETFs, it’s more than reasonable.
ETFs to Buy: Morgan Creek-Exos SPAC Originated ETF (SPXZ)
While SPACs get a lot of bad press in 2021, there is no question they’ve become a popular investment for both financiers and investors. In 2021, according to Renaissance Capital, there were 604 SPAC IPOs through Dec. 16. These IPOs raised $144 billion in capital for their sponsors to go out and find targets to merge with.
SPXZ has invested approximately two-thirds of its assets in the 50 largest companies post-combination SPACs in the past three years. As a result, all 50 get an equal 2% weighting. The final third is invested on an equal-weight basis in the 50 largest pre-combination SPACs.
On the surface, the fact the ETF has lost 36% of its value since its inception in January 2021 would suggest that the fund’s investment strategy is flawed. However, the successful active manager should not be focused on the next six or 12 months, but three to five years. It is way too early to pronounce judgment on SPXZ.
It is fair to suggest that the one-third portion dedicated to pre-combination SPACs is likely to pull down the ETF’s overall performance. That’s because — and this isn’t based on empirical research, but my own opinion — the boost SPACs used to get on the first day of trading and after a combination is announced don’t seem to be present in SPAC 2.0.
As such, you’ve theoretically got one-third of your assets stuck in neutral. Perhaps we will return to the halcyon days of 2020. I don’t know.
What I do know is that SPXZ is an excellent contrarian play.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.