Looking at some of the worst performing ETFs over the past four weeks, one can see that the more some trends change, the more others will stay the same.
Betting against financials in 2008 was a winning play. Recently that has been anything but the case. Betting against health care or real estate in 2008 both also proved to be winning plays. In 2009 it looks as if these calls still continue to be on the money.
Financials snap back
Going into yesterday, the Direxion Financial Bear 3X Shares (NYSE: FAZ, Stock Forum) was dead last among ETFs over the past four weeks as it had lost 56.7% over this time period. The notion that Citigroup (NYSE: C, Stock Forum) was profitable during the first two months of 2009 as well as a positive outlook from Jamie Dimon at J.P. Morgan Chase & Co. (NYSE: JPM, Stock Forum) has lead to financial bears being carried off the trading floor in a box.
It looks as if FAZ’s downward trend is going to persist. The ETF was down 45.1% on Monday as financial stocks rallied on the Treasury Department’s toxic asset plan, which could purchase $1 trillion in troubled assets from banks’ balance sheets.
On life support
In 2008, investors in the SPDR Dow Jones Wilshire REIT ETF (NYSE: RWR, Stock Forum) and the iShares Dow Jones U.S. Healthcare Provider Fund (NYSE: IHF, Stock Forum) choked on losses of 38.9% and 43.7%. The outlook for these two ETF continues to remain bleak. RWR and IHF are down 13.0% and 18.7% over the past four weeks.
RWR is suffering from a deteriorating commercial real estate environment and heavy debt burdens that are weighing down many REITs in the fund. This ETF’s 11% dividend yield is unlikely to remain sustainable.
IHF could also have more pain of its own coming its way. The Obama administration has laid out plans to fund a large portion of its health-reform agenda with new taxes and $175 billion in cuts to private Medicare plans, which will impact several components of this fund.
Getting defensive
Another sector that has caught the attention of the Obama administration, albeit in a negative fashion, is that of defense contractors. Earlier this month, Obama put the sector on notice to watch wasteful spending practices. The Government Accountability Office found that 95 major Defense Department weapons contracts ran a total of $295 billion over budget last year. The message has contributed to a 12.9% decline in the iShares Dow Jones U.S. Aerospace & Defense Fund (NYSE: ITA, Stock Forum) over the past four weeks.
Disclosure: no positions