The saying “One man’s trash is another man’s treasure” can sometimes be applied to exchange-traded funds: Those that sometimes appear worthless to one investor turn out to be quite valuable to another.
Consider the sharp 2022 pullback in stocks that sank ETFs tied to blockchain technology, cryptocurrency and technology. Investors who wrote off these categories last year are sorry—because one year later, these same funds are among 2023’s top performers.
So it could be that investors able to muster courage and buy beaten up names might eventually be rewarded for holding on to them.
With that in mind, let’s look at the ETFs that have been among the worst performers in 2023.
Abrdn Physical Palladium Shares ETF (PALL)
As manufacturers around the globe have taken steps to reduce carbon emissions, it’s been a boon for the proliferating electric vehicle. But it’s been a bane for those items tied to older technology, like internal combustion engines, and that includes the silvery white metal palladium, a key component of these engines. The demand for this metal has (not surprisingly) taken a massive hit.
And the fallout has been felt in ETFs tied to it as well: The Abrdn Physical Palladium Shares ETF (PALL) has crashed almost 50% in value since the start of the year.
And as bad as the fund’s 2023 performance has been, the worst might be yet to come if there’s an uptick in electric vehicle sales in coming years. Then again, if the market has overestimated demand for them, palladium could experience a surprising rebound.
KraneShares Electric Vehicles & Future Mobility Index ETF (KARS)
Despite the ascendance of electric vehicles and their promising future, their recent equity performance has been shaky. That’s been reflected in the performance of the KraneShares Electric Vehicles & Future Mobility Index ETF (KARS), whose 23.73% loss this year epitomizes the sluggish performance of the group.
The KraneShares fund has been hit harder than other ETFs focused on electric vehicles because of its large exposure to underperforming Chinese stocks, which represent more than 30% of the overall fund’s global equity exposure. Moreover, the $136 million fund holds a concentrated portfolio of just 76 stocks, making it more volatile and susceptible to sharp selloffs. On the other hand, a rebound in Chinese stocks would likely lift the fund back into the driver’s seat.
ALPS Clean Energy ETF (ACES)
While the renewable energy trend is still young, the rapid spike in U.S. interest rates has hurt the sector, since the cost of financing energy projects has dramatically increased. Some investors are worried about the threat of total capital depletion among immature companies that aren’t careful managing their cash flows.
These issues are reflected in the performance of the ALPS Clean Energy ETF (ACES), which offers a diversified play across seven different renewable energy sectors. The fund has declined 38.29% in value this year, while another fund, the Energy Select Sector SPDR Fund (XLE), has declined by only a modest 0.40%.