While the megacap technology names once again drove the U.S. stock market to solid monthly gains to kick off 2024, some of the last year’s stock laggards continued to struggle.
All three major U.S. benchmark indexes on Wednesday finished January with positive gains, aided by further advance for some of the so-called Magnificent Seven stocks, as well as expectations that the Federal Reserve would begin easing monetary policy by the first half of this year. The stock indexes also scored their third straight monthly advance, the longest such streak since mid-2020, according to Dow Jones Market Data.
For the month, the S&P 500 advanced 1.6%, while the Dow Jones Industrial Average was up 1.2% and the Nasdaq Composite surged 1%, according to FactSet data.
See: Fed meeting: Dow Jones ends more than 300 points lower after Powell says March rate cut unlikely
Here’s a look at some of the worst-performing exchange-traded funds in January, according to FactSet data through Wednesday, January 31.
China ETFs
China’s stock market had a rough 2023 and the rout accelerated in the first month of the new year.
The benchmark CSI 300 index tumbled 6.3% in January to end the month at its lowest level in five years amid concerns that a series of stimulus measures unleashed by the Chinese authorities in recent weeks is still not enough to revive the deteriorating economic outlook, or to boost investor confidence dampened by the disappointing economic recovery after years of self-imposed Covid-19 isolation.
See: Evergrande ordered to liquidate: What investors need to know about China’s economy
Further complicating things, earlier this week, China’s troubled property developer Evergrande HK:3333 faces liquidation after a Hong Kong court deemed the company incapable of delivering on its restructuring plan, extending a long-run drag from the beleaguered property development sector on growth. Meanwhile, losses on billions of dollars worth of derivatives linked to the country’s equity indexes, or the so-called snowball derivatives, also fed the recent market avalanche.
The Invesco Golden Dragon China ETF slumped 14.2% this month to book its worst monthly performance since October 2022 when it fell 25%, while the Invesco China Technology ETF dropped 20.5% in January to suffer its worst month since 2011, according to Dow Jones Market Data.
See: Stock investors pile into China equity funds in ‘world’s most enticing contrarian’ long trade
While some market participants have started to look for a reason to buy Chinese stocks due to their cheaper valuations, others remain unconvinced as they think the pain in the country’s economy may be around for a while.
“Investors usually need to see a sustained acceleration in China’s economic activity before its equities outperform, said Alejandra Grindal, chief economist at Ned Davis Research. He expects the country’s monetary and fiscal support to remain intact, but there will be “nothing of enormous proportions” as the Chinese government “doesn’t have the appetite to overstimulate” amid the risk of creating bubbles.
It’s also possible that the stimulus is less effective due to an unsustainable level of debts and a shrinking population, he wrote in a research note from earlier this week.
“We continue to have concerns about China’s long-term growth trajectory as its demographic outlook deteriorates further and the economy becomes more internalized,” Grindal said.
See: China’s low birthrate will slow its stock market. Here’s when to expect it.
Electric vehicles and Tesla-related ETFs
Prices of some of the electric-vehicle stocks slumped in January.
Shares of Tesla Inc. TSLA tumbled 24.6% to book its worst month since December 2022 when the stock fell 36.7%, according to FactSet data, after the EV-maker reported quarterly earnings that “massively disappointed” Wall Street last week.
Some of the clean energy ETFs that invest in Tesla and other EV manufacturing companies also tumbled this month. The First Trust Nasdaq Clean Edge Green Energy Index Fund was off 17.7% in January to log its worst month since October, while the Global X Lithium & Battery Tech ETF , which invests in companies throughout the lithium cycle, including mining, refinement and battery production, fell 18.6% in January to book its biggest monthly decline since March 2020, according to FactSet data.
ARK Innovation ETF
The ARK Innovation ETF was off 13.3% in January after two of the largest holdings of Cathie Wood’s flagship fund’s — Coinbase Global COIN and Tesla Inc. — each tumbled around 25% this month, per FactSet data.
MarketWatch reported earlier this month that ARKK has bought more than $20 million worth of Tesla’s stock three times in three weeks, each time on days of big selloffs. That was a big reversal from its last year’s moves to trim its large stake in the electric-vehicle giant.
Clean-energy ETFs
Clean-energy ETFs were hammered by their sensitivity to higher interest-rate in 2023, but their lackluster performance continued into the new year.
The Invesco Solar ETF declined by 20.6% in January to log its biggest monthly drop since March 2020, while the iShares Global Clean Energy ETF tumbled 11.3% over the same period, according to FactSet data.
MarketWatch reported last week that another Donald Trump presidency could hurt this ETF sector as the former president is anticipated to roll back Biden’s flagship climate policies such as the Inflation Reduction Act and its $369 billion in tax breaks and subsidies for clean energy, should he secure a second term.
Last year, the renewable-energy sector witnessed one of the toughest years in its short history due to supply-chain issues, rising financing costs and a notable slowdown of secondary market transactions. ICLN fell for three consecutive years between 2021 and 2023, after scoring an over 140% annual return in 2020 following Biden’s election victory, according to FactSet data.
Here’s a look at the bottom-performing ETFs over the past month through Wednesday, according to FactSet data.
