These funds had a bad year.
It was a great year for the stock market in 2017. Investors who had a stake in the Standard & Poor’s 500 index via a mutual fund or exchange-traded fund cleaned up with roughly 20 percent gains. Of course, other investors made tactical bets that proved to be quite terrible. Because while the S&P as a whole was up nicely and sectors like tech outperformed, other assets did very poorly. So what were the worst funds of 2017? Here are 10 of them, the worst of which was down as much as 80 percent despite an upward-trending stock market.
10. ProShares Short S&P 500 (ticker: SH)
Shorting a stock means to bet against it by borrowing shares at current market value and hoping the price falls so you can buy back those same shares at a cheaper price. Thus the SH borrowed stocks in this key index with the hope they could get a better price later. The problem for this fund in 2017 is clear. If you borrow stocks at a fixed price and have to buy them back later at a price that’s 10 percent to 20 percent higher, you lose money constantly. That’s what happened to the SH ETF, and why it fell about 17 percent — almost the exact opposite of what the S&P 500 gained in 2017.
9. ProShares Short Financials ETF (SEF)
The SEF is similar to the short S&P fund. But instead of investing across the board, it borrowed a bunch of bank stocks with the hope they could get a better price later. The problem for this fund in 2017 was that regulatory reforms in Washington and a general rally for stocks meant managers were constantly losing money on that trade. All told, the SEF ETF is down about 18 percent in 2017.
8. iPath Pure Beta Coffee ETN (CAFE)
Thanks to financial innovation, it’s easier than ever to play markets that were once hard to access. This includes commodity markets, where agricultural goods like corn, soybeans and coffee are traded. Unfortunately for the CAFE ETF, coffee prices collapsed this year after supply shortages of 2016 abated and a general downturn across commodity markets took their toll. The CAFE fund declined about 20 percent this past year.
7. SPDR S&P Oil & Gas Equipment & Services ETF (XES)
The challenges of the energy industry over the last few years, including weak crude oil and natural gas pricing, took their toll on service companies. After all, there is little incentive to explore oil fields if prices are weak. That means the companies that service these sites simply have less business. There are a few similar funds out there to play oil and gas service stocks, including the XES, which posted a decline of roughly 23 percent in 2017.
6. ProShares Short QQQ ETF (PSQ)
Of all the major indexes, the tech-heavy Nasdaq 100 did the best in 2017. That’s great for investors who played this trend to the upside via a fund like the Powershares QQQ Trust (QQQ) that is benchmarked to the index and posted 32 percent profits. However, there are also funds like the PSQ that bet in the opposite direction. Thanks to the unique nature of the investments, there isn’t a 1-to-1 ratio, but the 25 percent loss for PSQ in 2017 is still pretty darn ugly.
5. Global X MSCI Pakistan ETF (PAK)
There are plenty of red-hot emerging markets out there that outperformed the U.S. in 2017. In fact, many China-focused funds put up bigger profits than even the S&P 500 index this past year. However, there are also plenty of nations that are doing pretty poorly — among them, Pakistan. After a massive run in 2016, inflation concerns and a general cooling off of the market led to challenges. Throw in the fact that investors had plenty of better opportunities in places like the U.S. and China, and money left Pakistan in a hurry. As a result, the PAK ETF lost 27 percent in 2017.
4. iPath Pure Beta Sugar ETN (SGAR)
As with coffee, sugar turned out to be a bad investment in 2017, thanks to headwinds for this key commodity. Part of this is due to a strong U.S. currency, since commodities like sugar are denominated in dollars. With more buying power, investors can purchase more sugar for the same amount of money — or, more to the point, the same amount of sugar for less money. As a result, sugar prices collapsed and the SGAR plummeted 30 percent this year.
3. ProShares Short FTSE China 50 (FXP)
Like the U.S., China had a very good year. Some China funds like the popular iShares FTSE/Xinhua China 25 Index ETF (FXI) gained over 30 percent in the last 12 months. Unfortunately, as with betting against the financial sector during a broad rally, betting against China also proved to be a painfully bad decision in 2017. There are a few ETFs that gave investors access to this strategy, but the FXP performed the worst with an ugly 49 percent loss.
2. iPath Dow Jones-UBS Natural Gas ETN (GAZ)
Energy prices have been chronically low for the past few years for a few reasons. These include a glut of supply due to innovations like fracking that bring new oil and gas fields online, as well as less demand thanks to energy efficiency. Those big-picture pressures haven’t abated, and natural gas had a pretty bad year in 2017. Subsequently, the GAZ that invests directly in this fossil fuel suffered in kind. The fund has dropped a staggering 65 percent since Jan. 1 — and worse, shows no sign of stabilizing after hitting a new low recently.
1. VelocityShares VIX Short-Term ETN (VIIX)
The CBO Volatility Index, more commonly known as the VIX or the “fear index,” is a measure of market volatility. It’s comprised of S&P 500 options pricing and is meant to indicate where investors expect the benchmark index to be across the next 12 months. Thanks to the innovation on Wall Street, investors can predict where this index will wind up by investing in the VIIX. Unfortunately, the VIX index has been in steady decline as market volatility has been non-existent in a steady and optimistic market, and the VIIX lost more than 70 percent of its value this year.
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10 of the Worst ETFs of 2017 originally appeared on usnews.com
