The S&P 500 has returned a remarkable 23% this year. So if you own an ETF that's not up as much as that — it really stings.
Unfortunately, getting stuck with an S&P 500-lagging ETF this year is easier than you might hope. Nearly three-quarters of the actively traded U.S. diversified ETFs are trailing the S&P 500's 2024 return so far, says data from Morningstar Direct.
The ETFs bringing up the rear includes famous ETFs like Cathie Wood's $5.6 billion-in-assets ARK Innovation ETF. But it's also snaring even larger funds like the $9 billion-in-assets Pacer US Small Cap Cash Cows 100. Out of fashion ETF themes, like green energy, are suffering, too. The $307-million-in-assets Invesco WilderHill Clean Energy ETF is the year's worst major U.S. diversified ETF with a negative return of 31%, says Morningstar Direct.
No wonder investors are largely sticking with what's working: mostly large stocks. "When looking at Morningstar category data in September, large blend equities experienced the largest inflow at $24.5 billion," said Jeff Buchbinder, chief equity strategist at LPL Financial.
The Small-Cap Slip Against S&P 500
Small caps, especially value-priced ones, are the most glaring spot of underperformance this year.
Seven of the 10 worst-performing U.S. diversified ETFs are small-cap funds. Case in point is Pacer US Small Cap Cash Cows. The ETF posted a negative return of 2.4% this year. Peabody Energy is the largest position in the ETF at 2.22%. Shares of the utility are up just 5% this year.
Small cap stocks are out of favor as investors worry smaller companies might suffer the most if the economy sputters. "Investors questioned the likelihood of a soft-landing scenario and path of monetary policy," said Adam Turnquist, chief technical strategist with LPL. "Small caps tend to be more sensitive to economic conditions and interest rates versus their larger cap peers."
Interestingly, though, investors are positioning themselves now for small-cap stocks to perform better next year, says Todd Rosenbluth, director of research at TMX VettaFi. Investors plowed nearly $3 billion into Pacer US Small Cap Cash Cows this year.
"Small cap value was out of favor in the higher for longer rate environment but is likely to perform better in 2025," Rosenbluth said. "Investors should not give up small caps or even value investing but rather ensure they have a diversified portfolio."
Even small caps beyond value are slipping, though. The $825-million-in-assets Invesco S&P SmallCap Value with Momentum ETF isn't keeping up with the S&P 500. Its return this year is just 2.9%.
Cathie Wood's Rough 2024 Versus S&P 500
As Tesla stock goes, so goes ARK Innovation. And that's been in the wrong direction this year.
ARK Innovation posted a negative return of 9.7% this year. That makes it the No. 2 worst U.S. diversified ETF this year. Only Invesco WilderHill Clean Energy is down more.
What's hurting ARK Innovation? Tesla's roughly 3% slip this year is the driver. Tesla is the No. 1 position in the ARK Innovation portfolio at 13.1%. Video streaming device maker Roku is the ETF's second largest position at 11.3%. Shares of Roku are down roughly 13%.
"ARKK has struggled as some of its high conviction positions like Roku and Tesla have lost money," Rosenbluth said. "Investors are paying for disruptive technology expertise and not being rewarded over the last three years."
Worst Performing U.S. Diversified ETFs This Year
Among those with the most trading activity
| Name | Symbol | % market return (loss) | Assets ($ billions) |
|---|---|---|---|
| Invesco WilderHill Clean Energy | PBW | -31.0% | $0.3 |
| ARK Innovation | ARKK | -9.7 | 5.6 |
| Pacer US Small Cap Cash Cows 100 | CALF | -2.4 | 9.2 |
| Invesco S&P SmallCap Value with Momt | XSVM | 2.9 | 0.8 |
| EA Bridgeway Omni Small-Cap Value | BSVO | 5.2 | 1.5 |
| Invesco Russell 1000 Dynamic Mltfct | OMFL | 5.4 | 5.4 |
| iShares S&P Small-Cap 600 Value | IJS | 6.0 | 7.2 |
| SPDR S&P 600 Small Cap Value | SLYV | 6.1 | 4.0 |
| Vanguard S&P Small-Cap 600 Value | VIOV | 6.1 | 1.4 |
| Simplify Volatility Premium | SVOL | 6.9 | 1.2 |
| S&P 500 | 23.3 |
