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Five of the worst ETF first-year performances are crypto-related

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Five of the seven worst debuts in the history of the ETF industry are crypto exchange trading funds.

The fund will launch at its peak in 2021, according to data from Morningstar Direct. Just in time to face the market fury of 2022.

Findings from data provided exclusively to the Financial Times exclude the performance of leveraged and inverse funds that are not designed for long-term holding.

All five focused on the once booming cryptocurrency sector or blockchain-related areas. launch near peak Head south just before returning for their theme.

“Specialized ETFs launch shortly after the excitement around popular investment themes has peaked. Prices have fallen as well,” Rabih Moussawi and colleagues wrote in an academic paper first published last year.

“Technical ETFs seem to cater to overly optimistic investors,” said Moussawi, an associate professor of finance at Villanova University in Pennsylvania.

of highly publicized ProShares Bitcoin Strategy ETF (Vito), which $1.2 billion record lost The long-awaited October 2021 increase in investor funding in the 12 months since its arrival has garnered plenty of headlines.

But the predicament was anything but unusual, with many smaller ETFs losing percentage points even larger than BITO’s 70.4% first-year plunge.

The worst performer is the France-based Melanion BTC Equity Universe Ucits ETF (FR0014002IH8), Marathon Digital Holdings, Riot Blockchain, and MicroStrategy.

October 2021, the same month as BITO, launched just weeks before the global market peaked, but fell 76.9% over the next 12 months.

Similarly, the US-listed Global X Blockchain ETF (BKCHMore) entered the fray last July but plummeted 76.7% in its first year.

Invesco Allerian Galaxy Crypto Economy ETF (Sato), another October 2021 just hatched, down 73.7%, the First Trust SkyBridge Crypto Industry and Digital Economy ETF (CRPT) shipped 69.4% in the 12 months to September this year.

“Blockchain investments generally go hand-in-hand with bitcoin and cryptocurrencies, but come with the added risk of equity exposure,” said Todd Rosenbluth, head of research at consultancy VettaFi. says.

“Companies connected to the broader ecosystem are facing challenges as the price of Bitcoin plummets and demand for the technology is not growing as fast as investors hope. It is punished as much or more than the base product itself,” he added.

The only unleveraged or inverse ETF with a worse first year than BITO was the Xtrackers MSCI Russia Capped Swap ETF (XMRDMore), which lost 75.1% in the year to December 2008 as the commodity supercycle collapsed, while the Canadian Horizons US Marijuana ETF (HMUS), 75.3% of its assets went up in smoke in 2019-20.

But in a demonstration of the risks of holding leveraged and inverse vehicles for the long term, according to Morningstar, any ETF’s worst debut year ever was driven by the Dublin-based Leveraged Equity 3x Roku exchange trading product (ROK3). Recorded. ).

Those who have held the fund in the 12 months since ROK3 launched in June 2021 have seen 99.92% of their funds evaporate, and the U.S. streaming platform’s share price decline during this period. Extended the 76% decline.

A similar story about the risks of holding commodities designed for the short term comes from Switzerland-based 21Shares Short Bitcoin ETP (SBTC), which took the other side of BITO’s bet, but for a different period. Launched in January 2020, his SBTC would have lost 86.2% of his investors in its first year, just as Bitcoin began its dizzying rise, rising 285%.

However, Morningstar data suggests that a dismal first year doesn’t necessarily spell the end for a fund.

SPDR Portfolio S&P 500 Growth ETF (Spieg) fell 53.8% in its first year of trading, 2000-2001, but has since recovered to become a $12.2 billion fund.

Similarly, the iShares Global Clean Energy ETF (ICLN) fell 56% in 2008-09, but now holds $4.5 billion in assets and the Invesco Solar ETF (tongue) fell 68.2% in the same year, but now holds $2.2 billion. Even ProShares has experienced this. UltraPro Short QQQ (SQQQ) currently holds $4.8 billion in assets, despite losing 68.1% in 2010-2011.

Kenneth Lamont, Senior Fund Analyst of Passive Strategies at Morningstar, believes the crypto sector could bounce back again.

“People I have spoken to who are investing in bitcoin are definitely still bullish because the potential use cases haven’t changed,” said Lamont.

“Many of the industry players have just met for the next bull market. No one knows if it will happen, but if there is an investment case for Bitcoin, we will probably see an equilibrium. I guess.”

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