If you were looking for a list of the best-performing ETFs of 2022, this is not it. Here are some worst performing ETFs of 2022, if that’s more your speed.
This article will look at ETFs that have performed poorly in the past few years and try to figure out why they might continue to do so in 2023. This will include information about what their holdings are, what's been happening with their economies, or any other relevant factors.
1. Vanguard FTSE Emerging Markets ETF (VWO)
(Expense Ratio 0.18%)
The Vanguard FTSE Emerging Markets ETF (VWO) is an index fund that tracks the MSCI Emerging Markets Index. This is the oldest and largest emerging markets ETF and has $33 billion in assets under management. It charges a relatively low expense ratio of 0.18% but has had weak performance recently, with a YTD return of -5%.
There are two main reasons for the weak performance of this ETF over the past year. The first is that emerging markets have been doing poorly in recent months. The second is that VWO has a heavyweight in financial stocks, which have performed extremely poorly as interest rates rise in the United States.
VWO has holdings in a few specific countries, which account for more than half of its total assets. These countries include China, Taiwan, South Korea, Brazil and India. Even though China makes up the biggest part of this ETF, it's not the top country by capitalization. Instead, Taiwan is the largest country in terms of market cap.
The largest holdings of this ETF are Tencent Holdings, Industrial & Commercial Bank of China (OTC:ICBCF), Cnooc Ltd. (NYSE:CEO) and Baozun Inc (NASDAQ:BZUN). These are all in the technology, financial services, or consumer discretionary sectors.
US Treasury 10-year yield has gone up from a low of 2.4% to a high of 2.85% over the past year. This is a high-interest rate, especially for an emerging market fund. Any further increase in interest rates could be very harmful to VWO and its holdings.
2. PowerShares Dynamic Markets
(Expense Ratio 0.65%)
The PowerShares Dynamic Markets ETF is designed to track the Dynamic Market Intellidex Index, which seeks to identify the best stocks in terms of momentum and volatility.
It has $132 million in assets under management and has had better performance recently with a YTD return of 6%. That may seem like a lot, but it’s still less than half of what the S&P 500 returned in that same period.
The fund has seen more volatility recently than many other popular ETFs, which can be a problem when investing.
The top holding of the Dynamic Markets ETF is Hasbro Inc (NYSE:HAS), which is a well-known toy company that's primarily known for its board games and games played on smartphones. It also has Russell 1000 (NYSEARCA:RSP) and ProShares Ultra VIX Short-Term Futures.
So far, the factors that have led to PWC’s poor performance over the past year may not be changed much in 2022. The world has not been so great for many of the companies in its top holdings, and interest rates will continue to rise, especially for emerging market ETFs.
3. Vanguard S&P 500 ETF (VOO)
(Expense Ratio 0.18%)
The Vanguard S&P 500 ETF is a popular index fund that holds over 300 of the largest stocks in the United States. This includes Apple Inc. (NASDAQ:AAPL), Comcast Corporation (NASDAQ:CMCSA), Costco Wholesale Corporation (NASDAQ:COST) and Amazon.com Inc.
The Vanguard S&P 500 ETF has a very well-known index for which it seeks to track. It has been around for over 30 years. However, this doesn’t necessarily mean that it will continue to perform well in the future.
One reason could be that Vanguard is owned by Blackrock and Blackrock is known as a fund company rather than an index company.
This means that they do more than just invest in stocks. They also manage money in other investment vehicles, such as funds and ETFs like VOO (technically mutual funds).
VOO has outperformed the S&P 500 by around 2% over the past year, which is not bad. However, VOO weighs heavily on tech stocks, and this sector is struggling now.
Tech stocks have been doing very poorly lately, leading to them being sold off significantly. This can happen in any industry, and it’s not always correlated to one year's performance, so future results will most likely be down for VOO.
4. Cboe Volatility Index (VIX)
(Expense Ratio 0.07%)
The Cboe Volatility Index (VIX) is a widely used measure of the market's volatility. The VIX measures how much option premiums change over time. It's one of the most important assets in options trading and can be useful for technical traders.
The VIX has dropped significantly over the past year, with a YTD return of -55%. This may not seem a big deal if you're just looking at the annual performance, but that -55% return accounts for more than two full months of returns. So far in 2018, the VIX has added close to -37% since the start of January.
The VIX has been a great investment for years now, but there's no guarantee that it will continue to be so in the future. If it does fall again and continues to do so through 2022, it could be a much smaller asset in the future than it is today.
It's been a very crowded asset due to its popularity, and this has caused most traders who have attempted to trade options on it to lose money. It could be another long-term investment that doesn't work out over time.
Relative to the other ETF on this list, VIX does not have much of a yield. It has a year-to-date return of -26.56%, and it's lost more than 43% over the past five years. These are inferior results, and its low annual expense ratio is insufficient to justify putting money into this fund.
5. PowerShares S&P Oil (PSO)
PowerShares S&P Oil Fund, or PSO for short, is a predominantly oil-based ETF and is part of the PowerShares family of energy-based ETFs. It has$3 billion in assets under management and trails only other oil-related darlings like the United States Oil Fund (USO) and Continental Energy (CLR).
Despite its small size, this fund has consistently beat the market over the past decade. Between 2006 and 2013, $1 million invested in PSO would have earned investors an average of 35% total returns annually.
Conclusion
ETFs are a very popular investment vehicle because they make investing in specific sectors or countries easier than buying individual stocks.
However, not all ETFs are created equal, and some ETFs are better suited for short-term while others should be used for long-term investing.
The growth in emerging markets will continue to be good for the long-term, but volatility and interest rates are very concerning to me.
This makes investing in a strong emerging market fund or ETF more questionable than it appears. There's always a chance that emerging markets will do well and those returns aren't likely to be returned by these assets in the future, so we would encourage investors to be on the lookout for other options that are better than VOO or VIX.
