VIIX VelocityShares VIX Short Term

2013 has been a solid year for both ETFs and equity markets so far. Many equity funds have experienced a huge amount of asset inflows, suggesting that investors are back to riskier assets for higher returns.

However, while many funds have produced double-digit gains in the first four months, there are a few that failed to garner investor interest and are down more than 40% in the same timeframe.

These products have been crushed by sluggish conditions in some key emerging markets like China, and more broadly, the decline of the ‘risk-off’ trade (read: Three Country ETFs Struggling in 2013).

This has made more volatile bets on sluggish conditions the wrong place to be for many investors, and below we highlight five of the worst performers—in the unleveraged ETF world—so far in 2013:

Volatility ETFs

Volatility level is best represented by the CBOE Volatility Index or the VIX. This fear gauge tends to do well when markets are sliding or fear levels ride high, neither of which have happened of late.

Instead, the VIX has been dropping while the futures curve has been unfavorable as well. In fact the VIX futures market currently trades in a condition known as ‘contango’, a situation where contracts further along the futures curve are more expensive than front month contracts. This trend has an enormous impact on volatility products, as it can eat away returns over longer time periods.

This has obviously kept the pressure on various volatility ETNs like VXX, VIIX and CVOL, which we have profiled in greater detail below (read: Why I Hate Volatility ETFs (And Why You Should Too)).

C-Tracks ETN Citi Volatility Index Total Return (CVOL)

Launched in November 2010, this ETN was the worst performer, losing about 60% so far in 2013. The note, linked to the Citi Volatility Index Total Return, provides investors direct exposure to the implied volatility of large-cap U.S. stocks.

The Index methodology combines a daily rolling long exposure to the third and fourth month futures contracts on the VIX with short exposure to the S&P 500 Total Return Index. The VIX futures contracts exposure is constantly maintained, but the weighting of the S&P 500 Total Return Index is variable and determined monthly via a backward-looking linear regression.

The product has attracted just $1.8 million in assets while charging 1.15% in annual fees from investors. It trades in small volume of 4,400 shares per day, thereby increasing the total cost of the ETN in the form of wide bid/ask spread. 

VelocityShares Daily Long VIX Short-Term ETN (VIIX)

This product targets the short-term volatility and seeks to deliver the daily performance of the S&P 500 VIX Short-Term Futures Index. The index provides investors with exposure to one or more maturities of futures contracts on the VIX, which reflects implied volatility of the S&P 500 Index at various points along the volatility forward curve (see more in the Zacks ETF Center).

Launched in November 2010, the product has little $18.2 million in AUM but a pretty solid volume of roughly 560,000 shares per day. The note is down about 40% in the first four months of the year, while its expenses are at the low end for volatility products at 89 bps a year.

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

This is the most popular volatility ETN on the market focusing on the S&P 500 VIX Short-Term Futures Index. The Index offers exposure to a daily rolling long position in the first and second month VIX futures contracts.

VXX was debuted in January 2009 and has over $1.1 billion in assets under management. The note sees a truly impressive volume level of over 41 million shares a day. Still, the product is a bit pricey compared to some low cost index funds in the market, charging investors 89 bps a year in fees. The ETN lost 40% in the same time frame.

Commodity ETFs

iPath Global Carbon ETN (GRN)

This ETN tracks the Barclays Capital Global Carbon Total Return Index, which measures the performance of the most highly traded carbon related credit plans and serves as an industry benchmark for carbon investors.

The product holds around 94% of its total assets in future contracts of EXC Emission Reduction Units (ERUs) and the remaining 6% in future contracts of EXC Certified Emission Reductions (CERs). The product is facing tough times losing about 53%, basically due to a recessionary environment in the Euro zone - the largest buyers of carbon credits—and premium/discount issues in the note (read: Has the Euro ETF Bottomed Out?).

Moreover, the political turmoil in many parts of the continent also was responsible for such dismal performance, as prices of such products are very much dependent on political decisions and reforms as they relate to the number of credits outstanding in the marketplace.

Beyond this, investors should also be concerned about the volume and tradability of the note. Currently, there is just $0.6 million in assets invested in the product while daily average volume is below 2,000 shares. The note was launched in June 2008 and charges investors 75 bps in fees and expenses.

Gold Mining ETFs

Global X Gold Explorers ETF (GLDX)

This is by far one of the most volatile ETFs in the mining space. The fund seeks to match the performance and yield of the Solactive Global Gold Explorers index, before fees and expenses, focusing on stocks involved in the gold exploration market.

GLDX produced negative returns of nearly 46% in the first four months of the year. This is because the gold mining industry has been underperforming for quite some time.

Rising production cost, pressured margins, over-budget projects and money-losing multibillion-dollar takeovers led to the dreadful situation in the industry (read: Is the Gold Mining ETF Slump Over?).

The ETF has managed assets worth $29.4 million since its launch in Nov 2010. It is widely spread across 20 small cap securities with none of them holding more than 6.73% of assets. Lyndian International, Torex Gold Resources and Seabridge Gold occupy the top three positions in the basket.

In terms of country exposure, Canada takes the top spot with 89.7% share, followed by United States (6.2%) and Australia (4.1%). The product has a relatively tight bid/ask spread given volumes of more than 113,000 shares per day, charging 65 bps in annual fees.

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C-TRAC VOLAT IX (CVOL): ETF Research Reports
 
GLBL-X GOLD EXP (GLDX): ETF Research Reports
 
IPATH-GLBL CRBN (GRN): ETF Research Reports
 
VEL-VIX ST (VIIX): ETF Research Reports
 
IPATH-SP5 VX ST (VXX): ETF Research Reports
 
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