If your ETFs are down this year — you have every reason to be upset. Losing money when the S&P 500 already returned nearly 10% this year — is enough to steam most investors including those betting on Cathie Wood.
And unfortunately, losing money during such a banner year isn't impossible. Ten U.S. diversified ETFs, including Cathie Woods' ARK Innovation, Invesco WilderHill Clean Energy and Vanguard S&P Small-Cap 600 Value, are all in the red for the year, says an Investor's Business Daily analysis of data from Morningstar Direct and MarketSurge.
And these laggard ETFs are all suffering from similar setbacks. Stubbornly high interest rates are cutting down small, speculative and dividend paying stocks. "A higher for longer interest rate environment has played a role in equity ETF performance to start 2024," said Todd Rosenbluth, director of research at Vetta Fi. "High dividend yielding, more defensively positioned ETFs … are struggling."
Woods' Sinking ARK
Perhaps most surprising is the more than 7% drop this year by Woods' ARK Innovation — making it the second-worst U.S. diversified ETF this year so far. It's a shock as this same ETF soared 67.6% in 2023 — making it the best of last year.
But the tables are turned on the $7.4 billion-in-assets ARK Innovation this year. What's the problem? Tesla certainly doesn't help. Shares of the electric vehicle maker crashed more than 30% this year. That's a big problem for ARK Innovation as it's the ETF's largest position at 9.9% of the portfolio. Tesla's first-quarter revenue and profit both disappointed investors.
ARK Innovation's woes, though, go beyond Tesla. More than three-quarters of the ETF's nearly 40 positions are down this year. "ARKK's troubles are connected to Tesla's struggles but other disruptive technology positions … have underperformed," Rosenbluth said. Adding salt to the wound, shares of AXS Short Innovation Daily ETF, which bets against ARKK's positions, is up 9.2% this year.
Additionally, Woods ARK Space Exploration & Innovation ETF, ARKX, is down nearly 4% — making it another of the 10 worst ETFs this year.
Sizing Up ETFs Lagging The S&P 500
Momentum and growth are where the action is. And ETFs that don't play those games are suffering.
So far, only 4% of actively traded U.S. diversified stock ETFs are down this year. But some of the losses really sting. The $363.4 million-in-assets Invesco WilderHill Clean Energy ETF is the most painful. The ETF that owns stocks to benefit from clean energy is down 22.6% this year. Its position in solar-power firm Sunnova Energy isn't helping. That stock is down nearly 70% this year. Solar stocks are struggling partly due to concerns about the future of government subsidies for clean energy in an election year, Rosenbluth says.
Small Value And Dividends Suffer
Remember how this was supposed to be the year of small, value and dividends stocks? It's not happening yet.
The $1.2 billion-in-assets Invesco High Yield Eq Dividend Achievers ETF is down 2% this year. The yields on the ETF's holdings look less appealing compared with the high yields still possible from safer short-term Treasuries. "This ETF has nearly half of exposure in utilities stocks and a hefty chunk in consumer staples," Rosenbluth said. "Such sectors are unappealing."
Meanwhile, a number of ETFs owning small, value-priced stocks are lagging. The $1.4 billion-in-assets Vanguard S&P Small-Cap 600 Value is down nearly 2%. Again, small value ETFs are reeling from higher interest rates. "Small cap value ETFs are out of favor. These companies often need to take on debt in hopes to grow and are paying high rates," Rosenbluth said.
When you're the only one you know losing money, it's time to pay attention. "Equity ETFs do not all perform the same. What's inside has driven and will continue to impact performance," Rosenbluth said.
Losing ETFs This Year
Among actively traded U.S. diversified funds
| Name | Ticker | Year-to-date % return | Annualized 5-year return |
|---|---|---|---|
| Invesco WilderHill Clean Energy | -22.5% | -1.7% | |
| ARK Innovation | -7.1 | 0.7 | |
| Invesco Russell 2000 Dynamic Mltfct | -3.8 | 8.7 | |
| ARK Space Exploration & Innovation | -3.7 | n.a. | |
| ProShares Russell 2000 Dividend Growers | -2.6 | 4.1 | |
| Invesco High Yield Eq Div Achiev | -2.1 | 7.3 | |
| Vanguard S&P Small-Cap 600 Value | -1.7 | 7.8 | |
| SPDR S&P 600 Small Cap Value | -1.7 | 7.8 | |
| iShares S&P Small-Cap 600 Value | -1.7 | 7.7 | |
| EA Bridgeway Omni Small-Cap Value | -0.8 | 10.2 | |
| Benchmark: S&P 500 | 9.6 | 14.5 |
