For many investors with conservative-to-moderate risk tolerance looking for investment income, a so-called "passive fund" may often be the way to go: place money in low-cost products and ride the returns without too much active trading involvement. Less active trading ideally means less expense and management activity, which should in turn reduce investors' costs and fees.
Bankrate's Greg McBride points out that while passive funds are often less costly than active funds, "they'll still carry higher costs than those invested in a broader index." BIC Financial Planning analyzed such costly passive funds, finding that these exchange-traded funds (ETFs), exchange-traded notes (ETNs), and related funds all shared significant negative returns over the past 10 years, since the 2008 financial crisis.
Accordingly, some passive funds, despite the name, may not be suitable for long-term, low-risk investors who shouldn't be exposed to the complexity of certain products such as leveraged and inverse ETFs.
The analysis found that most of these losing funds came from the energy industry, which includes natural gas, crude oil and precious metals. Many of the following exchange-traded products, for instance, were hurt by the drastic fall in the price of oil ($140 per barrel in 2008 to below $30 at one point).
Even more misleading are the time periods some funds and ETFs use to measure performance. Some of the ETFs, such as State Street Global Advisor's SPDR S&P Metals and Mining ETF (XME) show a very positive three-year return (XME's is 22.40%), which conceals the extent of the fund's poor 10-year performance (XME's 10-year return is -4.58%). Others, such as VanEck Vectors Russia ETF (RSX) and iShares MSCI Turkey ETF (TUR), both international market funds, are repeat offenders, having previously appeared on our 2016 worst "Oil, Gas & Emerging Market Funds" list. EWZ, IEZ, XME, and XES also appeared on that list, while GDX appeared on both that and our Worst Performing Mutual Funds & ETFs from 2012-2017 list.
FINRA, meanwhile, cited overall #1 worst performer United States Natural Gas (UNG) in its 2017 decision to bar former WFG Investments broker Jay Dee Jordan for unsuitable recommendations and trading of ETFs, as well as a handful of additional leveraged and/or inverse ETNs and ETFs.
UNG was also the only fund on the list to feature an expense ratio in excess of 1.00%.
Others, such as the ProShares Short QQQ (PSQ), are inverse, leveraged, or inverse-leveraged ETFs that seek the opposite and/or multiple of a benchmark's performance (e.g., if the benchmark earns a +1% return, the inverse fund will lose 1%; an inverse leveraged fund will lose 1% multiplied by whatever that fund's indicated multiplier value is (e.g., x2, x3, etc.).
20 Worst Performing Passive Funds, 2008-2018
| Rank | Symbol | Fund's Name | 10-Yr Return | Expense Ratio|
|------ |-------- |----------------------------------------- |-------------- |--------------- |
| 20 | EWI | iShares MSCI Italy Capped ETF | -2.30% | 0.49% |
| 19 | RSX | VanEck Vectors Russia ETF | -3.31% | 0.67% |
| 18 | EWZ | iShares MSCI Brazil Capped ETF | -3.83% | 0.62% |
| 17 | IEZ | iShares US Oil Equipment & Services ETF | -4.52% | 0.43% |
| 16 | XME | SPDR S&P Metals and Mining ETF | -4.58% | 0.35% |
| 15 | GDX | VanEck Vectors Gold Miners ETF | -5.31% | 0.53% |
| 14 | DBA | Invesco DB Agriculture | -6.25% | 0.85% |
| 13 | TUR | iShares MSCI Turkey ETF | -6.27% | 0.62% |
| 12 | RJI | Elements Rogers Intl Cmdty TR ETN | -6.71% | 0.75% |
| 11 | DBC | Invesco DB Commodity Tracking | -6.92% | 0.85% |
| 10 | XES | SPDR S&P Oil & Gas Eqmt & Services ETF| -7.70% | 0.35% |
| 9 | DJP | iPath Bloomberg Cmdty TR ETN | -8.35% | 0.75% |
| 8 | GSG | iShares S&P GSCI Commodity-Index Trust | -11.08% | 0.75% |
| 7 | DBO | Invesco DB Oil | -11.30% | 0.75% |
| 6 | SH | ProShares Short S&P500 | -13.64% | 0.89% |
| 5 | USO | United States Oil | -16.43% | 0.77% |
| 4 | PSQ | ProShares Short QQQ | -18.39% | 0.95% |
| 3 | OILNF | iPath S&P GSCI Crude Oil TR ETN | -18.55% | 0.75% |
| 2 | TAN | Invesco Solar ETF | -18.68% | 0.70% |
| 1 | UNG | United States Natural Gas | -32.14% | 1.30% |
If your broker or adviser had you invested in a poorly performing exchange-traded product, ETF, ETN, or other passive fund that has proven harmful to your investments or interests due to its complexity, expenses, and/or volatility, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.