3 Of 2020's Worst-Performing ETFs: So Much Wasted Energy

Go-go days for the exchange trade funds industry don't appear to be going anywhere anytime soon. With equities racing higher, investors continue pouring cash into ETFs at a record pace.

“Assets invested in ETFs and ETPs listed globally reached new records of US$7.62 trillion and net inflows reached a new record of US$670.57 billion at the end of November,” according to report published Monday by ETFGI, a London-based ETF research firm.

With just a few trading days left in 2020, the S&P 500 is higher by 13.3% year-to-date. All things considered, that's pretty good work against the coronavirus backdrop.

Still, nearly 120 U.S.-listed ETFs are lower by at least 30% this year. Even when stripping out leveraged ETFs, there are still plenty of ETFs turning in depressing performances this year. Hint: many hail from the energy sector.

To be precise, 119 ETFs, including leveraged fare, are lower by 30% or more in 2020. Of that group, 37 are energy funds of varying types.

In an effort to mix things up a bit, we'll highlight two here while including a non-energy dud.

Fidelity MSCI Energy Index ETF (FENY)

At least the Fidelity MSCI Energy Index ETF FENY has the lowest annual fee (0.084%) among its peers. Otherwise, this fund is a clunker, as seen in its year-to-date loss of 34%. And no, we're not picking on FENY. Its SPDR and Vanguard rivals are also in the dubious down-30%-this-year club.

The big headwind for FENY and its brethren is massive Exxon Mobil XOM. The Fidelity ETF allocates over 20% of its weight to the downtrodden former Dow stock, making the fund vulnerable should Exxon ultimately decide to pare its dividend to conserve cash.

Speaking of dividends, FENY yields over 10%, but that may be more cause for concern than invitation to get involved.

iShares U.S. Oil & Gas Exploration & Production ETF (IEO)

The iShares U.S. Oil & Gas Exploration & Production ETF IEO sits right around the 30% year-to-date loss line, a less poor showing relative to funds like FENY because the iShares ETF has larger exposure to refiners than its traditional rivals.

For the brave, the 2021 case of IEO likely boils down to two factors.

First, there's rebounding oil demand at the hands of pent-up travel demand — but don't bet on demand for jet fuel being the driver. Second, ConocoPhillips COP needs to get in a groove because it accounts for 15.1% of IEO's roster.

Invesco KBW Premium Yield Equity REIT ETF (KBWY)

In another lesson in why eye-popping dividend yields are usually warning signs, the Invesco KBW Premium Yield Equity REIT ETF KBWY is down 33% this year, bringing its yield to 10.85%.

KBWY tracks the KBW Nasdaq Premium Yield Equity REIT Index and invests “90% of its total assets in the securities of small- and mid-cap equity REITs that have competitive dividend yields and are publicly-traded in the US,” according to Invesco.

Buoyed by recent momentum for small caps, KBWY is higher by almost 12% over the last month, but it needs a lot to go right to improve in 2021. Smaller stocks, REITs and the value factor are need to push higher to give KBWY some credibility as a 2021 idea.