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In a year in which the number of U.S. ETFs launched reached 650, breaking the record set in 2023 by 150, Morningstar named two leveraged ETFs the worst.
The $2.2 billion Defiance Daily Target 2X Long MSTR ETF was named the worst ETF of the year, Morningstar Director of Passive Strategies Research Brian Armor wrote in an article published earlier this month. It is said that
The ETF is the “Russian nesting doll” in question, starting with the single stock the ETF tracks, MicroStrategy itself, he wrote.
“MicroStrategy as a company is essentially a leveraged business with Bitcoin, because its primary business is raising cash to buy and hold Bitcoin.” writes Armer.
This article was previously published by Ignites, a title owned by FT Group.
The Defiance ETF layers on structural flaws such as imprecise swaps and volatility drag to further strengthen a stock that already acts as a leveraged proxy for Bitcoin, he wrote. .
Meanwhile, the $13 million YieldMax Short NVDA Option Income Strategy ETF tempts investors with the potential for high yields but carries significant downside risk through complex derivatives, Armor wrote. There is.
Overall, he noted, both products exemplify how high fees and excessive risk can undermine long-term returns.
Meanwhile, two ETFs, Jensen’s $70 million Quality Growth ETF and Neuberger Berman’s $216 million mid- and small-cap ETF, bring proven active strategies to the space. It stood out, Armer wrote.
Jensen’s mirrors its $8.6 billion sibling mutual fund, which boasts decades of competitive returns with lower volatility.
Similarly, Neuberger Berman’s ETF offers a mid-cap strategy sibling to the $11.1 billion Genesis Fund.
This is the second year in a row that the YieldMax ETF has been named one of the worst stocks of the year. Last year, the firm’s AI Option Income Strategy took home the honor along with the AdvisorsShares 2x Bitcoin Strategy ETF.
The winners in 2023 were BlackRock’s Flexible Income ETF and Schwab’s High Yield Bond ETF.
Since 2015, Morningstar has named its favorite and least favorite ETF stocks.
The inaugural Favorite Stock winners were the Vanguard Tax-Exempt Bond ETF and the Goldman Sachs Active Beta U.S. Large Cap ETF. The losers that year were the GlobalX SuperDividend Alternatives ETF and the AdvisorShares Restaurant ETF.
*Ignites is a news service for professionals in the asset management industry published by FT Specialist. Trials and subscriptions are available at ignites.com.
