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2020 was full of surprises for investors, and many of them were unpleasant. From the coronavirus bear market to a massive drop in oil prices, 2020 offered lots of ways to lose money. Given this situation, it’s unsurprising that many exchange traded funds (ETFs) also failed to perform well.
Key Takeaways
- From the coronavirus bear market to a massive drop in oil prices, 2020 offered lots of ways to lose money.
- Leveraged ETFs were responsible for many of the largest losses among ETFs in 2020, highlighting their risk.
- Leveraged bulls in oil and gas and leveraged bears in gold mining suffered some of the worst losses.
Below, we’ll take a look at those ETFs that were among the worst performers in 2020. Given the concentration of losses in the energy industry, it made sense to look at some of the other ways to lose money rather than just the largest losses in absolute terms. However, leveraged ETFs linked to natural gas, crude oil, and other industries that were hit hard performed the worst. Other poor performers included inverse ETFs that shorted 2020’s biggest winners while also using substantial leverage. It is often said that you can’t lose everything investing in ETFs, but some of these funds came awfully close.
1. Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (GUSH)
Performance in 2020 (as of Nov. 30): -97.74%
The Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares ETF (GUSH) fell by over 97% during the first 11 months of 2020. This terrible performance can be traced to a collapse in oil prices caused by a supply glut due to a price war between Saudi Arabia and Russia and a dramatic drop in demand driven by the coronavirus. That pretty much killed demand for new oil and gas exploration. Unfortunately for GUSH investors, this fund offers 2x leveraged daily exposure to the S&P Oil & Gas Exploration & Production Select Industry Index. GUSH weighs its index equally to avoid concentration in a small number of significantly-sized companies, but that did not help much in 2020.
GUSH launched in May 2015 and carried a gross expense ratio of 1.05% as of November 2020.
Leveraged ETFs sometimes take tremendous losses, but they can also make spectacular gains. Since buying and holding may cause such large losses in a single year, most investors only use them for short-term trades.
2. Direxion Daily Junior Gold Miners Index Bear 2X Shares (JDST)
Performance in 2020 (as of Nov. 30): -94.86%
Gold and oil prices often move together, but that was not true in 2020, unfortunately for investors in the Direxion Daily Junior Gold Miners Index Bear 2X Shares (JDST). Gold reached new highs as governments took extraordinary measures to stimulate the economy in response to the coronavirus crisis. When gold does well, junior gold miners typically do even better. However, JDST uses 2x leverage in the bear direction, which proved catastrophic in 2020.
JDST started out in October 2013 and had a gross expense ratio of 1.10% as of November 2020.
3. Direxion Daily S&P Biotech Bear 3X Shares (LABD)
Performance in 2020 (as of Nov. 30): -87.30%
Unsurprisingly, shorting biotechnology stocks in the middle of a pandemic proved to be a poor strategy, and the Direxion Daily S&P Biotech Bear 3X Shares (LABD) amplified that with 3x leverage. Bear positions tend to lose more than bull positions, and greater leverage usually means greater risk. LABD took up a bear position and used more leverage than any other ETF on this list, and the results were disastrous.
LABD began in May 2015 and had a gross expense ratio of 1.08% in November 2020.
4. ProShares Short VIX Short-Term Futures ETF (SVXY)
Performance in 2020 (as of Nov. 30): -36.61%
The ProShares Short VIX Short-Term Futures ETF (SVXY) allows investors to bet that stock market volatility will go down, so it was a poor performer among ETFs in 2020. This fund offers inverse exposure to an index of VIX future positions, but 2020 saw a big increase in volatility. The weighted average maturity of the futures is one month. SVXY reaches this goal by providing daily -0.5x exposure to the S&P 500 VIX Short-Term Futures Index as a substitute for tracking the VIX index itself, which is not possible.
SVXY launched in October 2011 and carried an expense ratio of 0.95% as of November 2020.