As anyone knows who has tried to use a wireless printer, sometimes things that are designed to make life easier and better just don’t really do either. (In reality, wireless printers are a Luddite plot designed to get us get back to chiseling words in stone. Reliable. Dependable. Eternal!)
But let’s consider mutual funds. The main reason to own a mutual fund is diversification. For example, the Standard and Poor’s 500 stock index is down a bit more than 2% from its all-time high of 2130.82, set May 21. But about 23% of the stocks in the S&P 500 are down 20% or more. (By tradition, a bear market starts at 20%).
If you decided to invest in a mutual fund, good for you! Unless, of course, you invested in the financial equivalent of a wireless printer. Of the 1,764 exchange-traded funds tracked by Morningstar, 441, or 25%, are trading 20% or more below their 52-week high.
Investors in some of these funds, of course, deserve to be spanked. The Direxion Daily Natural Gas 3X fund, which aims to deliver three times the gain (or loss) from the price of natural gas, has plunged 83% this year. And the VelocityShares 3x Long Crude Oil fund, similarly levered to the price of crude oil, is down 76% this year. Remarkably, the VelocityShares has $826 million dollars in the fund.
But some of the funds that have been crushed in the downturn aren’t entirely silly. iShares Emerging Markets fund (ticker: EEM), is off 46% from its 12-month high. While emerging markets are noted for submerging periodically, this is a significant downturn by most measures.
For those who want to take on the energy sector but don’t want to decide which woebegone stock to pick, there’s Vanguard Energy ETF (VDE). If you’re wrong, at least you’ll lose money in an extremely low-cost, tax-efficient way. (The fund also yields 3.1%, so you’ll get a bit of dividend income as well.)
And speaking of dividends, the SPDR S&P International Dividend ETF (DWX), is down 24.2% from its 52-week high. Blame the soaring dollar. Nevertheless, the fund yields 5.33%.
Many of the worst-performing ETFs are simply silly funds that their sponsors trotted out to try and gain some assets. Buying a heavily leveraged commodity fund is just a really, really bad idea. But if you want a slightly less risky way to invest in downtrodden sectors, it’s worth browsing the biggest loser lists.