Industry Updates

Halloween special: Which ETFs have tricked investors this year?

Global events have created a horror show for some ETFs

Theo Andrew

a carved pumpkin with a face

You could be forgiven for thinking 2022 has been one long horror show with markets facing a series of headwinds, spooking investors and leaving them with no place to hide.

Persistent high inflation, the economic impact of the Russian invasion of Ukraine and rising tensions between the US and China have created one of the grimmest macro-economic outlooks for over a decade.

It would also be remiss not to mention the UK’s recent ‘mini-budget’, arguably one of the most terrifying acts of self-sabotage by a developed market economy in recent history.

With this in mind, ETF Stream looks at the ETFs that have spooked investors the most this year.

1. Crypto and Blockchain

Dominating the bottom of the performance charts this year are a whole host of crypto equity and blockchain ETFs. Closely aligned to crypto and bitcoin, blockchain ETFs have shared much of the pain over 2022, with many launching last year when crypto sentiment was at its highest.

Since then, bitcoin and other crypto assets have been in a steep decline following several shocks in 2022, including the depegging of stablecoin TerraUSD from the US dollar and the bankruptcy of crypto lending agency Celcius Network.

The worst-performing ETF this year is the VanEck Crypto and Blockchain Innovators UCITS ETF (DAGB) which has plummeted 69.8%. This is followed by the ETC Group Digital Assets & Blockchain Equity UCITS ETF (KOIP) and the Invesco CoinShares Global Blockchain UCITS ETF (BCHC) which have delivered returns of -60.5% and -40.9%, respectively.

2. Russia

ETFs investing in Russian equities have faced a tumultuous year to say the least. Investors caught in these products at the onset of the Russian invasion of Ukraine in February have seen their money go to zero, with issuers either shutting the ETFs or suspending them.

High uncertainty remains around the future of the suspended Russia ETFs, however, some issuers are choosing not to terminate their products in the hope the conflict reaches a cordial conclusion in which the west’s economic sanctions on the country are lifted.

3. China

Another area of geopolitical tension is China. As President Xi Jinping secured a record third five-year term in office in October, China ETFs lost as much as a fifth of their value as there was little sign of the current hostile policy approach to large tech abating.

In the same month, US President Joe Biden announced sweeping sanctions on China’s tech industry in a bid to slow its progress as a global superpower. While initially this favoured US semiconductor ETFs, it also had a pretty devastating impact on China ETFs, which have been the worst performing over the month of October.

Highlighting this, the KraneShares CSI China Internet UCITS ETF (KWEB) has returned -30.9% over the past month, followed by the UBS ETF Solactive China Technology UCITS ETF (CHTE) and the HSBC Hang Seng Tech UCITS ETF (HSTC) which fell 28.7% and 26.1%, respectively.

4. UK gilts

If there is one thing the early demise of the Liz Truss premiership denied the country, it is the headlines that would have accompanied the ‘Halloween Budget’, planned in a bid to sort out the mess made by the ‘mini budget’ in September.

A market event that still haunts the UK economy, the package of unfunded tax cuts led to a collapse in UK gilt prices, sending shockwaves through defined benefit pension schemes.

Unsurprisingly, the impact of all this on ETFs was largely negative. The longer-dated SPDR Bloomberg 15+ Year Gilt UCITS ETF (GLTL) fell 25.7% in September, while on 27 September the iShares Core UK Gilts UCITS ETF (IGLT) briefly traded at a 1.08% discount to its net asset value (NAV), 180-times its historical average price deviation.

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