With the first quarter of 2012 coming to a close, investors have witnessed equity and commodity markets skyrocket as Wall Street continues to indulge their risky appetites. Stocks steamed ahead into the new year, with the Nasdaq and Dow Jones pushing into post-crisis, record breaking territory, an encouraging sign that perhaps the equity markets are well on their way to a full recovery. As markets rallied, many equity and commodity ETFs have posted impressive year-to-date gains. Although momentum continues to build, some corners of the market have struggled to keep up with the rapid pace [see also When Bigger Isn't Better: Profiling ETF Alternatives To DJP, FXI, GLD].
Of course, with these 2012 laggards comes an opportunity for investors to buy in cheap, positioning themselves for a potential turnaround in these sectors. Whether you’re looking to buy in or completely avoid these poor performing sectors, we outline the three ETF laggards struggling in 2012:
Gold has gotten off to a shaky and volatile start this year, as investors continue to digest the latest inflows of economic data. In an announcement in early March, Ben Bernanke had made no mention of an upcoming round of quantitative easing, which forced the shiny “safe haven” metal to plummet over 4% in one day as investors’ inflation fears were somewhat abated. Some believe that the commodity has been overvalued and that the drop in prices this year has simply been an example of a market correction [see also Three Reasons Why Gold Is Overvalued].
Although gold miners’ and explorers’ equities aren’t perfectly correlated to spot prices, their performances are heavily impacted by the commodity’s volatile movements. Despite some recent gains, both GLDX and GDX are down for the year, losing 9.21% and 5.21%, respectively.
Most investors have probably never even heard of GWO, let alone any kind of global warming fund. In short, GWO tracks an equally weighted index of fifty companies that have a focus on minimizing the impact of global warming on the world. Although investments in clean and alternative energy have surged over the last few years, hyper-targeted and illiquid funds like GWO haven’t been able to fully capture investors’ attentions.
Last year, GWO came in as one of the best performers in Q1; since then, the fund has lost nearly 23% and is down 8% this year alone. Lack of enthusiasm for the fund coupled with waning support for the “go green” movement has pushed this particular niche of the market into red territory [see also Shutter Island: ETFs In Danger Of Closing].
Despite mixed economic data and ongoing uncertainty, investors have expressed their cautious shift from “safer” asset classes to more risky and lucrative equities. Utilities are generally accepted as one of the most stable and reliable sectors of the market, delivering moderate but consistent returns to investors. Although steady income flows are coveted assets during times of uncertainty, utilities have somewhat lost their appeal this year as new bullish trends continue to emerge in the equities markets.
As investors continue to opt out of relatively “safe” utilities exposure to jump to “riskier” sectors like technology and financials, funds like XLU, FUI, and VPU have all posted losses so far this year. From a year-to-date perspective, XLU is down 3.86%, FUI lost 3.42%, and VPU dropped 2.98% [see also Seven Surprisingly Large ETFs].
Disclosure: No positions at time of writing.