Worst Performing ETFs in 2022

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. Continue reading "Worst Performing ETFs in 2022"

Best Performing ETFs in 2022

2022 was a very tough year for investors, both big and small. All three of the major indexes ended the year down substantially. The Dow Jones Industrial Average fell the least, just 8.8%. The S&P 500 dropped 19.4%, while the technology-heavy NASDAQ sank 33.1%.

2022 was the first year in four that the major industries ended the year lower. Inflation and aggressive interest rate hikes by the Federal Reserve to combat persistent inflation weighed on the market as a whole but had a more damaging effect on technology stocks.

Out of the top-performing Exchange Traded Funds in 2022, two of the top five were ETFs that are short technology stocks, while two others were short Treasury Bonds.

It's not very often that the best performing Exchange Traded Funds are ones that had bet against an asset class or specific industries, but that was the type of year we had in 2022.

Let's look at the top five performing ETFs of the year and see what they had in common and if there is anything we can learn that will make us better investors in 2023 and beyond.

As mentioned, two of the top five best-performing ETFs were short, US Treasury bonds.

The best-performing ETF of 2022 was ProShares UltraPro Short 20+ Year Treasury (TTT) which rose 150.17%.

The third best-performing ETF was the ProShares UltraShort 20+ Year Treasury ETF (TBT), which increased by 93.29%.

Both funds were "short" or betting that they would decline in value, Treasury bonds that have 20 or more years until maturity.

The TTT was leveraged three times short Treasury bills. That means if a Treasury bill fell $1 and the TTT triple short leveraged fund had bet against it, TTT would be up $3. So for every $1 move lower Treasury bonds went, TTT was moving $3 higher.

The TBT fund was also short-leveraged, but it was only short two times. So if it were short a bond that fell $1, it would go higher by $2, not $3 like TTT. This also means that TBT carried lower risk than TTT, and still performed well in 2022. Continue reading "Best Performing ETFs in 2022"

How Low Can Tesla Go?

2022 Year-to-date shares of Tesla (TSLA) are down 66%. The question everyone is wondering is, "Can Tesla fall more?" The simple answer is yes. Any stock, even one with a cult-like following, can go to zero.

The question we should be asking is, when is Tesla stock fairly valued? Or even better, undervalued? Having an idea of what price Tesla should be valued at will give investors a better idea of when they should buy or sell. And really, the only time you buy or sell should be when a stock is overvalued or undervalued.

The problem is that valuing a stock is not cut and dry. Nearly every investor will inevitably come up with a different value for a stock, even if they are using the same data to do their valuations.

With that in mind, let us look at one way of valuing Tesla and determine if it is over, under, or fairly valued.

Today we will be using a comparison method of valuing Tesla. We will look at what Tesla does, compare its business to other companies operating in the same industry or industries, and determine if Tesla is appropriately valued based on its competitors.

Tesla is more than just a car company. I know you have all heard that before. Tesla considers itself a car company and an energy generation and storage company. So let us first compare Tesla to other solar energy generation and storage companies, and then we will tackle the car company side of the business.

A few years ago, Tesla purchased Solar City. A solar panel company that installs solar panels on residential and commercial buildings and has add-on battery storage components.

We can compare this side of Tesla's business to First Solar (FSLR). First Solar makes, installs, and maintains solar panels just like Solar City does for Tesla. First Solar is valued at just under $16 billion and has a price-to-earnings ratio of 165.

However, Tesla and Solar City also sell backup batteries that can be installed in a home. These batteries would be used during power outages or when solar panels aren't generating power, such as at night.

A comparison company for this would be Generac Holding (GNRC), which also sells power backup products, mainly generators, but they have battery backup systems for solar panels. Generac currently trades for $6.5 billion and trades at a P/E of 15, much more reasonable than First Solar. Continue reading "How Low Can Tesla Go?"

Best Performing ETF Group is Not What You Think

With just two months to go in 2022, the best-performing group of Exchange Traded Funds year-to-date may not be what you would have expected it to be when we started the year.

After a strong bull market rally coming off the march 2020 Covid-19 dip, most investors would have assumed stocks, mainly big technology stocks, would again be the market leaders in 2022.

However, the market never ceases to surprise, and as hindsight is always in 20-20 vision, it feels like we all should have seen the signs that 2022 wasn't going to be a good year for stocks and another asset class was going to dominate.

What asset class are we speaking of? Bonds! Well, to be more specific, shorting Treasury Bonds.

Shorting longer-dated Treasury bonds has been, hands down, the best trade of 2022. Whether you use leveraged and-or inverse products or not, shorting Treasury Bills has produced great results in 2022.

For example, the ProShares UltraPro Short 20+ Year Treasury ETF (TTT) is up 176% year-to-date and more than 50% over the last three months. Direxion's version of the same ETF, the Direxion Daily 20+ Year Treasury Bear 3X Shares ETF (TMV), is also up 176% year-to-date. The ProShares UltraShort 20+ Year Treasury ETF (TBT), which is a 2X leveraged inverse fund, is up more than 100% year-to-date.

Even the funds that short the shorter term Treasury bills, the 7-10 year term bills, like the Direxion Daily 7-10 Year Treasury Bear 3X Share ETF (TYO) and the ProShares UltraShort 7-10 Year Treasury ETF (PST) are up 66% and 42% respectively.

If you had run a screener at the beginning of the year for non-leveraged and non-inverse funds because the risk involved with those products are not necessarily in your comfort zone, you still could have bought the Simplify Interest Rate Hedge ETF (PFIX). PFIX holds over-the-counter interest rate options and US Treasury Inflation-Protected Securities or TIPS, and still produced a return of around 100% year-to-date.

So you may be asking how and why shorting longer-dated Treasury bills produce solid results when interest rates, Treasury bills, and bond yields are climbing higher. Well, it is a little complicated on the surface but pretty simple once you understand how it all works. Continue reading "Best Performing ETF Group is Not What You Think"

Sugar-Coating the Likelihood of a Recession

Does anyone remember when then President Donald Trump told the American population that the Covid-19 lockdowns and spread of the virus that caused the pandemic would all be over by Easter? Or when referring to Covid-19, that it was “the flu”?

During the first few weeks of the pandemic, President Donald Trump downplayed the severity of the virus to not panic the American population. In hindsight, perhaps the early days, especially when the country was in lockdown, it would have been more beneficial to not sugar-coat the virus and the timeline of when the government would lift the lockdown restrictions.

Had President Donald Trump told people the virus would kill hundreds of thousands of people, perhaps we could have stopped the virus from spreading during the lockdowns.

If President Trump hadn’t given a timeline for the lockdowns and the pandemic seeing brighter days, perhaps the government wouldn’t have lost its creditability with so many Americans during the summer of 2020 and its continued response to the pandemic.

Our current situation with the Federal Reserve and its chairman Jerome Powell, is very reminiscent of the early days of the Covid-19 pandemic.

Back in the winter and early spring, Powell told us that inflation was “transitory” and wouldn’t last. He even said current inflation wouldn’t need aggressive monetary policy changes to fall. Then, even when Powell began to raise interest rates, he told Americans that there was a high probability of a soft landing, referring to the idea that the Fed could bring down inflation slowly and gently.

Powell continued to tell us this summer that raising interest rates gradually and methodically would lower inflation but not put the economy in a recession.

Fast forward to just a week ago, and Powell tells us that the “chances of a soft landing are likely to diminish.” Inflation has hardly moved even though the Fed has raised interest rates five times, starting in March 2022. At that time, the Fed increased rates by 0.25%, 0.50% in May, then a 0.75% bump in June, July, and September.

Powell also said at the most recent Fed press conference following its announcement of the September rate hike that “we have to get inflation behind us. I wish there were a painless way to do that. There isn’t." Continue reading "Sugar-Coating the Likelihood of a Recession"