2021 was another solid year for stocks, in general, but not all groups participated in the gains. In fact, some sectors performed downright miserably. The markets mostly favored mega-cap developed growth and tech names. What it didn't favor was the next-generation more speculative and financially insecure names whose prices in the past have been driven higher by their potential more than their results.
By my count, 19 of the 85 subsectors I track posted negative returns in the 12-month period ending December 31st. 14 of them were down more than 10%. 8 were down more than 20%. 2021 was not the year where gains were spread out broadly across the board. If you were heavily invested in large-cap tech, the S&P 500 or even just a simple total U.S. market equity fund, you probably did pretty well. If you focused on emerging tech and developing industries, you may have had a few stinkers on this list in your portfolio.
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The ARK Innovation ETF (ARKK) provides a roadmap for what didn't work in 2021. Cathie Wood's theme of disruptive innovation worked wonders when those companies were in favor, but they tend to come with a lot of risk - the highs can be really high and the lows can be really low. Investors, unfortunately, found that out the hard way. The fund was down 24% last year and was overweight in a number of themes that are found on the list below.
Here's the list of the worst performing ETFs for the year 2021.
The cannabis sector is all over 2021's list of worst performers. The biggest names, including the ETFMG U.S. Alternative Harvest ETF (MJUS), the Global X Cannabis ETF (POTX), the Cannabis ETF (THCX), the Cannabis Growth ETF (BUDX) and the AdvisorShares Pure U.S. Cannabis ETF (MSOS), all lost more than 28% on the year. All of the other major cannabis ETFs, such as the ETFMG Alternative Harvest ETF (MJ), lost big in 2021 even though they weren't on this list. The Cambria Cannabis ETF (TOKE) was a relative outperformer, falling just 12% on the year.
The worst performer linked to the cannabis sector didn't even have cannabis in their names. The Defiance Next Gen Altered Experience ETF (PSY) expands its scope beyond just cannabis to other psychedelic drugs that can assist in the treatment of anxiety, depression and other neurological disorders. The AdvisorShares Psychedelics ETF (PSIL) follows a similar objective, but does not consider cannabis to be a psychedelic drug.
China lands several ETFs on this list as it was one of the worst performing individual markets last year. The regulatory crackdown that occurred on several of the economy's biggest names, including Alibaba and JD.com, sent their share prices plunging, while rapidly slowing GDP growth and the need for additional stimulus measures also hurt investor confidence. The Invesco Golden Dragon China ETF (PGJ) represents broader China exposure, but the KraneShares CSI China Internet ETF (KWEB), the KraneShares Hang Seng Tech ETF (KTEC) and the Global X MSCI China Real Estate ETF (CHIR) offered sector-specific exposure. It's interesting to note the KWEB took in roughly $7 billion of new money last year despite losing nearly 50%. Just goes to show you how attached some investors are to tech stocks.
Clean energy was one of the market's darlings in 2020, but completely reversed course in 2021 as oil prices began soaring again. The Defiance Next Gen H2 ETF (HDRO) lost 30% last year, but the Invesco WilderHill Clean Energy ETF (PBW) also made the cut.
The inclusion of the bitcoin ETFs on this list should probably come with an asterisk. Bitcoin itself was up around 60% on the year, but the timing of the bitcoin futures-based ETF launches in October and November was poor. The original fund, the ProShares Bitcoin Strategy ETF (BITO) fell 31% since its debut. The Valkyrie Bitcoin Strategy ETF (BTF) and the Global X Blockchain & Bitcoin Strategy ETF (BITS) weren't far behind.
Other ETFs worth noting:
The ProShares Long Online/Short Stores ETF (CLIX), unfortunately, experienced a perfect storm of exactly what it didn't want to happen. Online retail was one of the worst performing sectors in 2021, falling more than 40%, while traditional retail actually gained nearly 40%.
The SPAC boom may officially be over. Returns across SPAC ETFs were all over the place given the wide range of strategies they use, but the Morgan Creek-Exos SPAC Originated ETF (SPXZ) was the worst of the bunch posting a 37% loss (note: it launched at the end of January 2021). The Defiance Next Gen SPAC Derived ETF (SPAK) was around for the full year and declined 25%.
The Global X Education ETF (EDUT) is looking like a fund that tried to capitalize on a very short-term trend that has since fizzled out. EDUT focused a lot on online learning and educational content names. Of course, education providers have longer-term potential, but this ETF launched in July 2020 when schools everywhere were closing in-person and moving virtual.