TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.
The worst-performing exchange traded funds in May, which largely bet against commodities, might be good investments for short sellers who are bullish on the stock market.
Of the 25 biggest losers, the first 24 use inverse strategies that cause them to gain value as their underlying index falls. The remaining fund tracks an index that measures bearishness. If the stock market rebounds significantly, a short position in these funds could generate big gains.
Half of these ETF laggards track commodities inversely, specifically metals and energy. The weakening dollar lit a fire under crude prices in May, causing them to soar 30% to $66.31 a barrel. The falling dollar also boosted demand for gold and silver, whose prices rose 10% and 27%, respectively. The worst-performing ETF, the PowerShares DB Crude Oil Double Short ETN (DTO), sank 54%. Five other energy funds made the list, including the ProShares UltraShort DJ-UBS Crude Oil Fund (SCO), down 41%; the Direxion Daily Energy Bear 3X Shares ETF (ERY), down 34%; and the Rydex Inverse 2X S&P Select Sector Energy ETF (REC), down 26%. Seven other anti-commodity-based funds were caught betting against the trend including losses of 41% in the ProShares UltraShort Silver Fund (ZSL), 32% in the PowerShares DB Commodity Double Short ETN (DEE) and 20% in the PowerShares DB Gold Double Short ETN (DZZ). The last fund on the list, the iPath S&P VIX Short-Term Futures ETN (VXX), fell 17% as fewer speculators bet against the S&P 500 Index using put options.
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