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Santanu Roy

3 ETFs With Too Much Downside Risk to Buy Now

Higher-than-expected inflation numbers for August have compelled the Fed to announce another 75-basis-point interest rate hike today. After a third straight outsize interest rate hike, the central bank officials now predict the key rate to end 2022 between 4.25% to 4.5%.

Market volatility is rife, with CBOE Volatility Index up 56.5% year-to-date with speculations of a recession on the horizon. Bank of America's Global Fund Manager Survey found that 58% of investors expect a recession in the coming 12 months. In concurrence, former U.S. treasury secretary Larry Summers has warned investors to prepare for a bumpy recession.

In addition to fueling market volatility, Fed’s hawkishness is also strengthening the U.S. dollar, thereby leading to significant drawdowns in the value of precious metals and making borrowing increasingly expensive for growing businesses.

Given the backdrop, it could be wise to avoid ETFs VanEck Gold Miners ETF (GDX), ARK Innovation ETF (ARKK), and ProShares Ultra VIX Short-Term Futures ETF (UVXY), which seem to possess too much downside risk.

VanEck Gold Miners ETF (GDX)

Van Eck Associates Corporation manages GDX. The fund offers investors indirect exposure to precious metals by investing in stocks of companies operating across materials, metals, and mining, gold, and silver sectors around the world.

GDX seeks to track the performance of the NYSE Arca Gold Miners Index by using the full replication technique. With $9.41 billion in AUM, GDX’s top holding is Newmont Corporation (NEM), which has a 13.15% weighting in the fund, followed by Barrick Gold Corporation (GOLD) at 10.32%, and Franco-Nevada Corporation (FNV) at 8.58%. It has a total of 49 holdings.

The fund’s 0.51% expense ratio compares to the category average of 0.48%. GDX has not paid any dividend for the past six quarters. Its fund flows came in at negative $505.28 million over the past month and negative $111.78 million over the past three months. It has a beta of 0.69.

Since the dollar has been gaining strength due to aggressive interest rate hikes by the Fed, GDX has lost 4.7% over the past month and 24% year-to-date to close the last trading session at $23.75. Its NAV was $23.75 as of September 20, 2022.

GDX’s POWR Ratings reflect its bleak prospects. It has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

GDX has an F grade for Trade and a D for Buy & Hold and Peer. It is ranked #22 of 38 ETFs in the D-rated Precious Metals ETFs group.

Click here to see all GDX ratings.

ARK Innovation ETF (ARKK)

ARKK is the flagship actively managed fund from ARK Invest, an advisory firm led by renowned investor Catherine Wood. The fund seeks to generate long-term capital appreciation by investing in businesses across the globe that seeks to benefit from disruptive innovation.

With $8.05 billion in AUM, ARKK’s top holding is Tesla Inc. (TSLA), which has a 10.53% weighting in the fund, followed by Zoom Video Communications, Inc. Class A (ZM) at 7.9%, and Roku Inc. Class A (ROKU) at 7.78%. It has a total of 35 holdings.

The fund's expense ratio is 0.75%, compared to the category average of 0.50%. ARKK has not paid any dividend for the past six quarters. The fund flows came in at a negative $108.01 million over the past month and a negative $478.94 million over the past three months. It has a beta of 1.58.

Since growth stocks have found the going tough amid market volatility due to the Fed’s hawkish stance, ARKK has slumped 6.2% over the past month and 57.3% year-to-date to close the last trading session at $41.44. The fund’s NAV was $41.45 as of September 20, 2022.

ARKK’s overall POWR Rating of F equates to a Strong Sell. The fund also has grades F for Trade and Buy & Hold and a D grade for Peer.

ARKK is ranked #72 among 118 funds in the D-rated Technology Equities ETFs group. Click here to view all ratings of ARKK.

ProShares Ultra VIX Short-Term Futures ETF (UVXY)

ProShare Capital Management LLC launched UVXY. It is co-managed by ProFund Advisors LLC and ProShare Advisors LLC. The fund provides 1.5x daily leveraged exposure to short-term VIX futures to capture the volatility of the S&P 500 index.

With $1.08 billion in AUM, UVXY’s holdings consist of CBOE Volatility Index (VIX) Futures. The fund's expense ratio is 0.95%, and the fund does not pay any dividends. Fund flows came in at negative $411.79 million and negative $687.67 for the past month and past six months, respectively.

Broad market volatility caused by persistent interest rate hikes has also had a significant negative impact on the price performance of UVXY. The fund has plummeted 30.7% over the past six months and 61.7% year-to-date to close the last trading session at $10.46. The NAV was $10.45 as of September 20, 2022.

UVXY’s POWR Ratings indicate its bleak prospects. The fund's overall F rating translates to a Strong Sell in our proprietary rating system. It also has an F grade for Trade and Buy & Hold and a D for Peer.

UVXY is one of the two funds in the F-rated Leveraged Volatility ETFs category. Click here to view all ratings for UVXY.


GDX shares fell $0.07 (-0.29%) in after-hours trading Wednesday. Year-to-date, GDX has declined -25.60%, versus a -19.62% rise in the benchmark S&P 500 index during the same period.



About the Author: Santanu Roy


Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.

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