The stock markets across the globe are struggling this year as consumer prices are showing no signs of easing, compelling the central banks to fight against inflation by raising interest rates once again. In fact, the Federal Reserve has been on an aggressive tightening policy to bring down inflation, which is near its highest levels since the early 1980s.
In its fight, Fed Chair Jerome Powell raised interest rates by 75 bps for the fourth consecutive time that pushed the benchmark rate to 3.0-3.25%, the highest level since 2008. The rapid tightening has sparked worries over recession, leading to a sell-off in the stock markets. Additionally, Russia’s invasion of Ukraine has resulted in supply-chain issues while most of the developed and developing economies are witnessing a slowdown.
Meanwhile, the hot commodity market started to cool off in recent months and the yields are hovering around their multi-year highs (read: Higher Yields to Fuel Rally in These ETFs).
Given this, we have highlighted the three ETFs each from the best and worst-performing zones of the nine months of 2022:
Energy prices have been soaring this year, with natural gas on a tear buoyed by supply disruptions, adverse weather conditions and declining inventories. United States Natural Gas Fund UNG is the biggest winner, gaining 89.7% so far this year. United States Natural Gas Fund provides direct exposure to the price of natural gas on a daily basis through futures contracts. If the near-month contract is within two weeks of expiration, the benchmark will be the next month's contract to expire.
United States Natural Gas Fund has AUM of $467.1 million and trades in a volume of around 6.3 million shares per day. The fund has 1.11% in expense ratio.
Investors flocked to Simplify Interest Rate Hedge ETF PFIX to combat rising rate worries. Simplify Interest Rate Hedge ETF seeks to provide a hedge against a sharp increase in long-term interest rates and benefit from market stress when fixed-income volatility increases, while providing the potential for income. It buys put options on longer-term Treasury bonds to offer “the most liquid and the most cost-efficient way of getting interest rate protection.” Simplify Interest Rate Hedge ETF is the first ETF providing a simple, direct and transparent interest rate hedge (read: 5 ETFs Up 20% or More in the First Nine Months of 2022).
PFIX has accumulated $361.2 million in its asset base and trades in an average daily volume of 160,000 shares. It charges 50 bps in annual fees and has gained 78.3% so far this year.
Long/short ETFs are less volatile, less risky and relatively stable when compared to the market-cap counterparts. These products provide hedging facilities that protect the portfolio from huge losses in turbulent times. The long/short strategy takes the best of both bull and bear prediction by involving buying and short selling of equities at the same time.
KFA Mount Lucas Index Strategy ETF KMLM is leading in this space, gaining 45%. It is benchmarked to the KFA MLM Index, which consists of a portfolio of 22 liquid futures contracts traded on U.S. and foreign exchanges. The index includes futures contracts on 11 commodities, six currencies, and five global bond markets. These three baskets are weighted by their relative historical volatility, and within each basket, the constituent markets are equal-dollar weighted.
KFA Mount Lucas Index Strategy ETF has amassed $275.8 million in its asset base and trades in an average daily volume of 81,000 shares. It charges 92 bps in annual fees.
The technology sector has been badly caught in a selling spree triggered by rate hikes. This is because it relies on easy borrowing for superior growth, and its value depends heavily on future earnings. A rise in long-term yields lowers the present value of companies’ future earnings, sparking fears of overvaluation. VanEck Vectors Digital Transformation ETF DAPP has tumbled 73.3% this year.
VanEck Vectors Digital Transformation ETF aims to offer exposure to companies that are at the forefront of the digital asset transformation, such as digital asset exchanges, payment gateways, digital asset mining operations, software services, equipment and technology or services to the digital asset operations, digital asset infrastructure businesses or companies facilitating commerce with the use of digital assets. VanEck Vectors Digital Transformation ETF tracks the MVIS Global Digital Assets Equity Index and holds 25 securities in its basket.
VanEck Vectors Digital Transformation ETF charges 50 bps in annual fees and trades in an average daily volume of 93,000 shares. DAPP has accumulated $28.9 million in its asset base.
Though the shipping ETF performed well in September, it is among the worst performers due to declining freight rates amid waning dry bulk demand. Breakwave Dry Bulk Shipping ETF BDRY has plunged 69.6% so far this year. It is the only freight futures ETF exclusively focused on the dry bulk shipping market through a portfolio of near-dated freight futures contracts on dry bulk indices.
Breakwave Dry Bulk Shipping ETF holds freight futures with a weighted average of approximately three months to expiration, using a mix of one-to-six-month freight futures based on the prevailing calendar schedule (read: 5 ETFs That Survived September Slump With Double-Digit Gains).
Breakwave Dry Bulk Shipping ETF has accumulated about $44.2 million in AUM and trades in a good volume of about 334,000 shares per day on average. It charges a higher annual fee of 2.85%.
Being a high-growth sector, cannabis has been a victim of a round of broad market sell-off. AdvisorShares Pure Cannabis ETF YOLO has tumbled 67.6% so far this year. It is an actively managed fund with a dedicated cannabis investment mandate domiciled in the United States. YOLO seeks long-term capital appreciation by investing in both domestic and foreign cannabis equity securities.
AdvisorShares Pure Cannabis ETF holds a basket of 24 stocks with a double-digit exposure to the top two firms. American firms make up 61.4% of the portfolio, followed by a 28.7% share of the Canadian firms.
AdvisorShares Pure Cannabis ETF has gathered $57.4 million in its asset base and charges 76 bps in annual fees. YOLO trades in an average daily volume of 53,000 shares.
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United States Natural Gas ETF (UNG): ETF Research Reports
Breakwave Dry Bulk Shipping ETF (BDRY): ETF Research Reports
AdvisorShares Pure Cannabis ETF (YOLO): ETF Research Reports
KFA Mount Lucas Index Strategy ETF (KMLM): ETF Research Reports
VanEck Digital Transformation ETF (DAPP): ETF Research Reports
Simplify Interest Rate Hedge ETF (PFIX): ETF Research Reports
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