Three Equity ETFs Crushed By Monday’s Massacre

by on August 9, 2011 | ETFs Mentioned:

American equity markets had a day to remember during Monday’s trading session as major benchmarks plunged across the board thanks to Standard & Poor’s downgrade of U.S. sovereign debt.  The ratings agency dethroned the world’s largest economy from its AAA rating one notch to AA+, causing a ripple effect throughout the market as investors reassessed risk and the likelihood of another slowdown or more downgrades in the future. 

Thanks to these worries, the Dow plummeted by nearly 600 points in the session, pared losses to ‘just’ 400 points, only to finish lower by close to 634 point, a nearly 5.6% loss for the day. While these losses were pretty bad, it was nothing compared to the broader indexes as both the S&P 500 and the Nasdaq experienced declines exceeding 6.6% to open up the week. Yet, sectors of the financial market were hit even harder by the news, especially firms focused on oil, banking, or those that are generally tied to global growth. Below, we highlight three of the biggest losers from the sell-off, all of which were down more than 10% in the session:

Market Vectors TR Russia ETF (RSX)- Down 11.7%

Russian equities were among the worst performing emerging markets on the day as oil’s collapse hit this Eastern European country’s equity market especially hard. Prices of the vital commodity, of which Russia is the world’s largest producer, fell by close to 7% on the day, from close to $86/bbl. all the way down to the 80.2 mark. Energy companies make up 36.6% of RSX’s assets while basic materials and financials combine to make up another 40%, two sectors that didn’t exactly perform very well during the day’s trading either. Thanks to RSX’s focus on these three hard hit sectors, investors shouldn’t be surprised to see this fund at the bottom of the heap in terms of short term emerging market performance. In fact, RSX is now down 21.2% over the past five days alone, while oil prices, as represented by BNO, have fallen by 11.4% during the same time frame. The one bright spot comes when looking at volumes for this Russian ETF as shares changed hands roughly 3x more often than usual, suggesting extremely tight bid ask spreads for anyone looking to establish a position in this popular product from Van Eck [ETF Insider: Run For The Hills!].

First Trust ISE Global Copper Index Fund (CU)- Down 11.3%

Thanks to broad fears over global demand and industrial production, commodity producers– and especially miners of industrial metals– were down heavily on the day. Arguably the most famous and popular of the industrial metals is copper; the red metal finds its way into hundreds of applications and is a vital resource in everything from piping and wiring to electronic parts and even coins. Thanks to these broad uses, concerns over the world falling into a double dip recession have hit the metal pretty hard in the session, pushing prices of copper down nearly 3.8% on the day and close to 50 cents below the level the product was at just a few weeks ago at close to $4.50/lb. Since mining companies often trade as a leveraged play to the underlying commodity, today was a pretty rough day for CU as the fund declined close to 11.3% in the session. Furthermore, thanks to the copper weakness in the sessions leading up to double-digit drop, CU is now down close to 24.6% in the past five sessions alone, suggesting that bargain hunters who believe the recent sell-off to be overdone could have an opportunity in this First Trust product [Closer Look At Copper ETF Options].

PowerShares Financial Preferred Fund (PGF)- Down 11.0%

Monday was an extremely rough day for banking equities as the downgrade impacted financials across the board. Events were especially bad in the preferred corner of the market as many of these securities could see a downgrade in the next few days given the events in the sovereign and agency debt space. In fact, none of the top ten holdings in PGF are rated anything more than AA by S&P while four of the top ten have ratings of BB+ or lower. Given the ongoing worries in the financial sector and especially the concerns over banking giants such as Bank of America, a downgrade to this slice of the market is not beyond the realm of possibilities and has likely been hurting this fund over the past few trading sessions. However, American worries aren’t the only thing plaguing this fund as this ETF consists of several European banks as well. Thanks to the ongoing turmoil in Europe and the worries over sovereign debt in Italy and Spain, many euro zone financial institutions have been selling-off as well, including HSBC and ING, two firms that are in the top four holdings of PGF. This broad weakness has helped to push this popular PowerShares product down close to 14.4% over the past five days, pretty bad considering the outsized payouts this product offers as well as the general stability that preferred stock can usually provide to investors  [see Definitive Guide To Preferred Stock Investing].

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Disclosure: No positions at time of writing, photo is courtesy of Daniel Schwen.