The Fed recently announced its fourth consecutive three-quarters of a percentage point interest rate hike, taking the target range to 3.75% to 4%, its highest since January 2008. The latest move comes after inflation rose higher than expected in September, climbing 8.2% year-over-year.
The Fed Chair Jerome Powell indicated that the decision to slow the rate increase pace would be taken at the next Fed meeting. However, Powell cautioned that the final level of interest rates would be higher than expected.
The Fed’s rate hikes have created an inverted yield curve, which happens when shorter-term government bonds have higher yields than long-term ones. The 2-year Treasury yield is currently 4.666%, higher than the 10-year Treasury yield at 4.149%. This makes the prospects bleak for long-term bond-focused investments.
On the other hand, rising interest rates and strengthening the dollar will likely keep gold under pressure. And rising borrowing costs will likely mar the prospects of companies working on disruptive innovations.
Given this backdrop, it could be wise for long-term investors to avoid underperforming ETFs iShares 20+ Year Treasury Bond ETF (TLT), VanEck Gold Miners ETF (GDX), and ARK Innovation ETF (ARKK).
iShares 20+ Year Treasury Bond ETF (TLT)
BlackRock Fund Advisors manage TLT. The fund invests in U.S. dollar-denominated fixed-rate U.S. Treasury securities with a remaining maturity of greater than or equal to twenty years. It seeks to track the performance of the ICE U.S. Treasury Bond ETF by using a representative sampling technique.
With $22.57 billion in assets under management (AUM), TLT’s top holding is United States Treasury Bond 1.875% 15-Feb-2051, which has a 10.99% weighting in the fund, followed by United States Treasury Bond 2.0% 15-Aug-2051 at 7.66%, and United States Treasury Bond 3.0% 15-Feb-2049 at 6.79%. It has a total of 33 holdings.
Its fund flows were negative $1.50 billion over the past five days. Its NAV was $94.21 as on November 8, 2022. TLT has declined 36.4% year-to-date and 36.7% over the past year to close the last trading session at $94.30.
TLT’s POWR Ratings reflect its bleak prospects. It has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
TLT has an F grade for Trade and a D for Buy & Hold and Peer. It is ranked #26 out of 40 ETFs in the Government Bonds ETFs group. Click here to see all TLT’s ratings.
VanEck Gold Miners ETF (GDX)
Van Eck Associates Corporation manages GDX. The fund offers investors indirect exposure to precious metals by investing in stocks of companies operating across materials, metals, and mining, gold, and silver sectors around the world.
GDX seeks to track the performance of the NYSE Arca Gold Miners Index by using the full replication technique. With $10.16 billion in AUM, GDX’s top holding is Newmont Corporation (NEM), which has a 12.30% weighting in the fund, followed by Barrick Gold Corporation (GOLD) at 9.56%, and Franco-Nevada Corporation (FNV) at 9.25%. It has a total of 50 holdings.
The fund’s 0.51% expense ratio compares to the category average of 0.48%. Its fund flows were negative $339.57 million over the past year. Its NAV was $26.53 as on November 8, 2022.
GDX has lost 16.7% year-to-date and 19% over the past year to close the last trading session at $26.66.
GDX’s overall POWR Rating of D, equating to a Sell. The fund also has grades D for Trade, Buy & Hold, and Peer.
GDX is ranked #24 among 38 funds in the Precious Metals ETFs group. Click here to see all GDX’s ratings.
ARK Innovation ETF (ARKK)
ARKK is the flagship actively managed fund from ARK Invest, an advisory firm led by renowned investor Catherine Wood. The fund seeks to generate long-term capital appreciation by investing in businesses across the globe that seeks to benefit from disruptive innovation.
With $6.89 billion in AUM, ARKK’s top holding is Zoom Video Communications, Inc. (ZM), with a 9.78% weighting, followed by Tesla, Inc. (TSLA), with an 8.66% weighting, and Roku, Inc. (ROKU), with 6.79%. It has a total of 34 holdings.
The fund’s expense ratio of 0.75% compares to the category average of $0.51. Its fund flows came in at a negative $406.69 million over the past three months. It has a beta of 1.50.
ARKK has declined 63.2% year-to-date and 71.8% over the past year to close the last trading session at $34.85. The fund’s NAV was $34.85 as of November 8, 2022.
ARKK’s POWR Ratings reflect its bleak prospects. It has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has an F grade for Trade and Buy & Hold and a D for Peer. It is ranked #66 among the 118 funds in the D-rated Technology Equities ETFs group. Click here to view all ratings of ARKK.
TLT shares were trading at $94.00 per share on Wednesday afternoon, down $0.30 (-0.32%). Year-to-date, TLT has declined -35.39%, versus a -19.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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