10 ETFs that will destroy your money

Investing in ETFs is a wonderful thing. But even with this popular form of investment, investors can make many mistakes. To help you avoid these mistakes, I’ll show you 10 ETFs that are destroying your money in this article.

Speculating with ETFs

When investing in ETFs, investors can also be tempted by their emotions or prominent trends. However, ETFs are an investment form in which investors usually play a passive role. But for some people, that is not enough and so they try to either achieve excess returns or reduce risk by making targeted investments in individual countries and sectors. However, this does not always lead to success.

Today, we are looking at 10 ETFs that have performed particularly poorly over the past five years. So these are not one-off fluctuations, but rather a longer period. In addition to the minimum age of five years, all ETFs in this list manage a total of at least €50 million.

Let’s take a look at the 10 ETFs that have lost more money than they have earned over the past few years.

ETF No. 1: Lyxor S&P 500 VIX Futures

Investors should only invest in the Lyxor S&P 500 VIX Futures if they can identify an impending crash before all other investors. The reason: this ETF only rises when volatility in the US market is high, hence the abbreviation ‘VIX’ for ‘Volatility Index’.

Since the Lyxor S&P 500 VIX Futures benefits from market volatility, investors in this ETF were able to make significant profits at the beginning of the coronavirus crisis. From just €3.6 at the end of February 2020, the price rose to over €12 within a month. All thanks to the outbreak of the coronavirus pandemic.

For me as an investor, the Lyxor S&P 500 VIX Futures is not an attractive ETF, as I have to keep buying a new portfolio of so-called ‘futures contracts’. This means that you are constantly betting on the price of the S&P 500 and these bets naturally cost money. Investors like Dirk Müller, who believe in the constant crash and have therefore held the Lyxor S&P 500 VIX Futures ETF for the past five years, have made constant losses except for a few days in March 2020 – a pure waste of money.

ETF No. 2: Lyxor MSCI Turkey

There seems to be no end to inflation in Turkey. According to official figures, it is currently as high as 36%. According to unofficial figures from researchers, it is even higher, at 60 %.

This massive devaluation of money is pure poison for the economy. People spend less and have less money to invest and, as a result, economic growth slows down.

The Lyxor MSCI Turkey, which is traded in US dollars, has lost around 50 % of its value over the past five years due to inflation in Turkey. Patriotic investors who have invested their money here have seen it gradually disappear into thin air.

Even if this large decline offers potential growth in the future, the Lyxor MSCI World is currently out of the question for me.

ETF No. 3: Xtrackers Physical Platinum

The Xtrackers Physical Platinum is a EUR Hedged ETC. This means that this ETF holds physical platinum for its investors and hedges the platinum purchased in dollars against currency fluctuations in euros.

Such currency hedges are expensive on the one hand and often a waste of resources on the other, as the dollar and euro balance each other out in the long term. The bottom line is that investors gain little from such an investment. At the same time, as with any precious metal, platinum is a non-productive investment. Unlike companies and their shares, precious metals do not generate any actual value for people, but only acquire value through their scarcity.

For this reason, investors should not hold too high a proportion of precious metals. The five-year loss for platinum was 13%.

This data makes it very clear that an investment in platinum has not been a wise one in recent years.

ETF Nr. 4: iShares STOXX Europe 600 Telecommunications

The iShares STOXX Europe 600 Telecommunications ETF is a classic example of a sector bet. This ETF invests in 600 telecommunications companies from Europe and has lost 5.7 % in value over the past five years.

Since its launch in 2001, the iShares STOXX Europe 600 Telecommunications ETF has achieved an annual return of just 0.7%. This is a below-average performance considering the high risk to which investors in shares are generally exposed.

Personally, I stay away from industry bets unless I know the sector very well. However, this is not the case in the telecoms sector.

ETF No. 5: Deka DAXplus Maximum Dividend

The Deka DAXplus Maximum Dividend ETF weights all ‘DAX’, ‘MDAX’ and ‘TecDAX’ stocks by dividend. From these, the 25 stocks with the highest dividends are simply bought.

The problem with this ETF is the country focus coupled with the low number of stocks, as the DAX is not exactly known for reflecting the German economy particularly well. For example, consumer staples are heavily underrepresented, while non-consumer staples such as the automotive sector are heavily overrepresented.

Investors who want to invest in a dividend ETF should rather use a global or pan-European ETF that is spread across several countries and better represents the various sectors.

Investors who have invested in the Deka DAXplus Maximum Dividend ETF over the past five years have achieved a meagre return of just 5%. At the same time, the return on the classic DAX was 34%.

The maximum loss of 44% is also far higher than that of the DAX at minus 25%, which makes an investment in this ETF unattractive.

ETF Nr. 6: HSBC MSCI EM Latin America

The HSBC MSCI EM Latin America invests in emerging markets in Latin America, namely Brazil, Mexico, Chile, Peru and Colombia. The ETF invests in 90 companies and achieves an attractive dividend yield of 4.38%. The fact that a full 60 % is invested in Brazil only becomes apparent at second glance.

By overweighting Brazil, investors in this ETF are making a large country bet. Investors have made a 5% loss on this country bet over the past five years.

It would make more sense to invest in an ETF that covers all emerging markets and not just a handful. This allows investors to spread their risk significantly.

ETF Nr. 7: iShares S&P 500 Energy Sector

The American iShares S&P 500 Energy Sector ETF invests in US companies from the energy sector, primarily oil and gas companies. Gas prices have risen sharply over the past 12 months due to the crisis-ridden situation – and so have share prices.

However, the performance before this crisis phase was anything but strong. The iShares S&P 500 Energy Sector ETF has only made a profit once in the last five years and has otherwise only ever been in negative territory. And this despite the fact that profits were reinvested!

The iShares S&P 500 Energy Sector ETF is also a sector bet. However, with this ETF there is the frightening fact that the three largest stocks make up more than 50 % of the portfolio.

Just three shares alone determine the performance of an entire ETF. This is anything but broad-based. Investors in this ETF should ask themselves whether an ETF is even necessary in this case. At least the management fees could be avoided by investing in the individual shares in the same way.

ETF Nr. 8: iShares Oil and Gas Exploration & Production

The iShares Oil and Gas Exploration & Production ETF is very similar to the iShares S&P 500 Energy Sector ETF described above. It also accumulates its profits, with the difference that it invests not only in US companies, but worldwide. In addition, the top three positions do not make up 50 %, but ‘only’ 30 % of the entire portfolio.

However, the country weighting of the iShares Oil and Gas Exploration & Production ETF is also heavily America-centred. American stocks make up 2/3 of the entire ETF. And investors also notice this in the performance.

As with other ETFs in this sector, the performance over the past five years has been less than spectacular. Investors were able to achieve a return of just 2% during this period and were in negative territory most of the time.

Investors who have held this ETF since its launch in 2011 would currently be looking at a loss of 25%. This is clear proof that the iShares Oil and Gas Exploration & Production not only burns oil and gas, but also money.

ETF Nr. 9: Lyxor MSCI China ESG Leaders

The Lyxor MSCI China ESG Leaders ETF invests in companies involved in the ESG sector, i.e. environmental, social and governance.

But for me, the question is: ‘Do ESG and China even go together?’. A look at the following chart provides possible answers to this question.

The chart shows that not a single company in this ETF is making serious efforts to act in an environmentally and socially sustainable manner. Only 27% are doing so half-heartedly and more than two thirds of all companies have absolutely no evidence of ESG-compliant business practices. In my eyes, this is a clear labelling fraud!

Investors in the Lyxor MSCI China ESG Leaders ETF have realised a negative performance of 11% in recent years.

The benchmark index, the MSCI China, rose by 68% over the same period.

ETF Nr. 10: UBS MSCI World

As an investor, you are probably wondering how a world index can be one of the worst ETFs. After all, the performance of the MSCI World has been 80 % in recent years.

Well, the answer with the UBS MSCI World lies in the mapping of the underlying index. This is because it is tracked significantly worse than its competitors. The difference between the ETF and the actual index – the tracking difference (TD) – is therefore 0.22. In comparison, the iShares Core MSCI World achieves a much lower deviation from the index.

For this reason, the UBS MSCI World is also an ETF that I would definitely steer clear of.

Conclusion: You can also burn money with ETFs

Compared to individual shares, ETFs are among the lower-risk forms of investment. However, here too, investors can make many mistakes if they do not obtain sufficient information in advance. To avoid increasing the risk of ETFs, investors should avoid sector or country bets. Key figures such as the tracking difference also provide information on whether an investment in the respective ETF is worthwhile or whether it is just wasted money at the end of the day.