The first exchange-traded fund (ETF) came onto the American financial markets in 1993 when State Street Global launched the SPDR S&P 500 (NYSE:SPY). With an average volume of over 200 million shares traded, this original ETF is still the most popular ETF traded today - but that doesn't mean it gives the best returns. (For related reading, see Introduction To Exchange-Traded Funds.)
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One of the biggest advantages of ETFs is that an investor can create a diversified portfolio using a handful of different ETFs to cover the entire stock and fixed income market. Likewise, for investors who already have a sizable portfolio of individual stocks, more specialized ETFs can be a great way to augment holdings and provide entry into a wide variety of
sector, commodity, small-cap and emerging markets. Buying an ETF to represent an entire sector of the stock market can also be a great way to ride out a bullish trend on a specific sector.

However, trading in ETF does not totally eliminate the challenge of stock picking. Owning an ETF that tracks an out-of-favor sector will result in returns that significantly underperform the market.

Check out some of this year's worst-performing ETFs.






Company


Net Asset Value


YTD % Loss


Direxion Daily Real Estate Bear 3X Shrs (NYSE:DRV)


95.45M


-67.75%


ProShares UltraShort Silver (NYSE:ZSL)


61.27M


-60.35%


iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX)


2.09B


-57.50%


Direxion Daily China Bear 3X Shares (NYSE:CZI)


11.22M


-57.39%


ProShares UltraPro Short Russell2000 (NYSE:SRTY)


25.65M


-54.97%


Direxion Daily Small Cap Bear 3X Shares (NYSE:TZA)


627.60M


-52.37%



Bottom Line
It's no surprise that most of the underperforming ETFs are leveraged ETFs. In these funds, losses are compounded two- or even three-fold as a result of the leverage used. This means that they will suffer more than similar ETFs that don't use leverage. (For related reading, please see Dissecting Leveraged ETF Returns.)

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Tickers in this Article: DRV, ZSL, VXX, CZI, SRTY, TZA

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