Like the best-performing Exchange Traded Funds of 2022, the worst-performing ETFs of the year were all leveraged.
It is no surprise that leveraged ETFs would be the best and worst-performing ETFs each year. But, interestingly, three of the top first worst performing ETFs were leveraged funds that are bullish big technology stocks, and the other two were ETFs that are short oil & gas companies.
2022 was a year we saw many divergences occur compared to the past almost ten years.
The technology-heavy index, the NASDAQ, was the worst-performing major index, while the slow and sleepy Dow Jones Industrial Average, while still down, was the best performer. The Dow Jones Industrial Average fell 8.8% as the S&P 500 dropped 19.4%, and the NASDAQ sank 33.1%.
Let's look at which ETFs finished in the top five worst performers of 2022.
The worst performing Exchange Traded Fund of 2022 was the ProShares UltraShort Bloomberg Natural Gas ETF (KOLD) which ended the year down 88.62%. KOLD provides two times short exposure to an index that tracks natural gas by holding second-month futures contracts.
In 2022 the price of natural gas went through the roof as Russia invaded Ukraine. That invasion led to almost all of Europe imposing a ban on Russian oil and gas, which led to price increases for any other country that also banned the importation of Russian oil and gas.
While KOLD was the worst-performing ETF, the ProShares UltraShort Oil & Gas ETF (DUG) was the fourth worst ETF of 2022 after dropping 72.99%. DUG offers investors two times short exposure to a market-cap-weighted index of large US oil and gas companies.
Since Russia is one of the largest oil and gas producers in the world, the bans on buying their products sent the price of both oil and gas higher in 2022. Thus oil and gas companies based in the United States benefited, and DUG rose substantially.
But, most experts claim the Russian-Ukranie conflict was not the only reason we saw oil and gas prices climb. Some of the increase was likely due to increased demand as most of the world came out of Covid-19 restrictions, and more people felt comfortable traveling.
Regardless, oil and gas companies were one shining spot in 2022, and those who owned DUG did not do well.
DUG's counterpart, the ProShares Ultra Oil & Gas ETF (DIG), which provides two times long exposure to the same large-cap US oil and gas companies that DUG shorts, was one of the best-performing ETFs of 2022. DIG increased by 123.99% in 2022, making it the second-best-performing ETF for the year.
The second worst-performing ETF of 2022 was the ProShares UltraPro QQQ ETF (TQQQ). TQQQ is a three times leveraged long ETF that provides exposure to a market-cap-weighted index that tracks the 100 largest non-financial companies which are listed on the NASDAQ. TQQQ lost 79.08% last year.
One of the best-performing ETFs of 2022 was the opposite of TQQQ, the ProShares UltraPro Short QQQ ETF (SQQQ), which shorts the same portfolio of companies with three times leveraged. SQQQ ended 2022 up 82.36%, making it the fourth best-performing ETF for the year.
Coming in as the third worst-performing ETF in 2022 was the ProShares Ultra NASDAQ Cloud Computing ETF (SKYU). SKYU is a two-times leveraged long ETF that offers exposure to an equally-weighted index of US companies that operate in the cloud computing industry.
The fund ended in 2022 down 75.95% as the whole technology industry got sold off as interest rates rose and valuations came back to reality.
The ProShares Ultra Semiconductors ETF (USD) was the fifth worst-performing ETF, which dropped 68.56%. USD offers two times long exposure to a market-cap-weighted index that tracks large US semiconductor companies.
Similar to SKYU, USD is a very industry-specific focused ETF that was sent lower due to interest rates, valuation reductions, and the industry's history of struggling during recessions.
With many market participants expecting a mild recession in 2023, investors sold off stocks that typically don't perform well in a slowing or negative economy.
Remember, past performance is not a sign of future performance. So don't base any investment decisions on what performed well or poorly in the past.
Have a game plan and a thesis based on facts and data about why something should move higher or lower in the future.
Hopefully, you only owned the ETF winners of 2022 and not the losers. Regardless, best of luck and happy investing in 2023.
Matt Thalman
INO.com Contributor
Follow me on Twitter @mthalman5513
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
