3 ETFs That Tanked In February

| March 1, 2013 | 0 Comments

monthly losersThe Dow gave investors quite a thrill on the final day of trading for February.  

The storied index came within 50 points of its all-time high of 14,198 set in October 2007.  And while it failed to eclipse that peak, the Dow did set a new 52-week and five-year high in the process.

However, not all stocks performed as well as those in the Dow Industrials. 

In fact, I’ve identified three areas of the stock market that experienced heavy losses for the month.  Let’s take a closer look at three non-leveraged ETFs that invest in these areas and find out what happened. 

Understanding why these ETFs plunged in February should give you some insight into whether they’re a buy or sell at this point.

Global X Gold Explorers ETF (GLDX)

GLDX was one of the worst performing ETFs in February.  For the month, the fund plunged 23.15%, which brings its year-to-date return to a stunning -28.83%.

As its name suggests, GLDX invests primarily in junior-gold mining companies that are focused on exploration.  It puts at least 80% of its assets in junior gold miners included in the Solactive Global Gold Explorers Index.

So what happened to GLDX?

The junior gold miners’ February drop is really nothing new.  They’ve been moving steadily lower, with only the occasional rally, over the past two years.

The industry has struggled with rising production costs that put heavy downward pressure on profit margins.  What’s more, a number of junior gold miners have lost fortunes on multi-billion dollar takeover gambles.

And to make matters worse, the price of gold has dropped by nearly 5% over the past 30 days.

With GLDX at new 52-week lows, the ETF may appear ripe for a rally.  However, I think there are many other areas of the market that offer better upside potential.  Only the most aggressive investors should consider speculating on GLDX at this time.

Market Vectors India Small-Cap ETF (SCIF)

To say SCIF had a tough time in February would be an understatement.  The ETF dropped by 14.35% for the month, bringing its year-to-date return to an unimpressive loss of 15.74%.

SCIF invests primarily in small, publicly traded companies that are headquartered in India or that generate the majority of their revenue in India.  The fund seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Market Vectors India Small-Cap Index.

This ETF is struggling due to a couple of major negative macro-economic events

A recent report shows India’s economy grew by just 4.5% in the fourth quarter, its slowest rate of growth in nearly four years.  And then yesterday, the Indian government announced it will increase spending this year by 16% to $309 billion.

What’s worse, India’s Finance Minister is on record favoring new taxes on large companies to boost revenue rather than spending cuts.  Slowing growth and the prospect of heavy new corporate taxes doesn’t bode well for Indian stocks.

If you like to bottom-fish, you might take a flier on SCIF.  However, this strategy is only appropriate for investors with the highest of risk tolerances.

MSCI Italy Index Fund (EWI)

EWI didn’t drop as much as GLDX or SCIF in February.  But the fund’s 13.55% loss for the month wiped out its gains for the year. 

The ETF’s now posting a loss of 7.51% so far in 2013.

EWI tracks the market-cap weighted MSCI Italy index, which aims to capture 85% of the total market cap of publicly traded stocks in Italy.  Component companies are adjusted for available float and must meet objective criteria to be included in the index.

This ETF got off to a rip-roaring start in January… what happened last month?

Italian stocks had been performing well as the government under Mario Monti cut spending and increased taxes.  However, last week’s election left the newly created Five Star Movement, an anti-austerity party, with the most seats in the Italian Parliament.

The election results show that the Italian people are fed up with rising taxes and cuts in government spending.  So, the shift in government has many investors worried Italy will abandon its economic reforms and the country will plunge into another financial crisis.

Given the political and economic uncertainly in Italy right now, your investment dollars would be better off elsewhere.  I would avoid EWI right now in favor of other country ETFs offering better stability and growth potential.

Profitably Yours,

Robert Morris

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Category: ETFs, Foreign Market ETFs, Index ETFs, Sector ETFs, What's Going On?

About the Author ()

Wall Street veteran and ETF specialist Robert Morris helped created ETF Trading Research in order to help investors get the most out of their ETF investments. Before creating ETR, Robert worked for a number of prestigious Wall Street firms such as Salomon Smith Barney, UBS, Hyperion Financial and Charles Schwab.

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