In a raging bull stock market, the biggest losers in 2019 were obviously funds that were short, or bet on volatility.

A Morningstar compilation of the 20 top loser funds or ETNs over 2019 through to November 2019 showed that, on average, they lost over 8% during the period.

The magnitude of that loss hits home when juxtaposed against the returns of funds that were on the right side of the market:

• Dow’s 20.94%, as measured by the SPDR Dow Jones Industrial Average ETF (DIA);
• S&P 500’s 25.10% gain, as measured by SPDR S&P 500 ETF (SPY); and
• Bloomberg Barclays U.S. Aggregate’s 7.52% gain, as measured by the iShares Core US Aggregate Bond ETF (AGG)

It gets worse if you looked at the best 20 funds with the largest gains of 2019. These have so far posted an average return of more than 40%.

True, investors plowed money into the losing funds for certain reasons or desired exposures. Had the market performed otherwise, the same investors would have been laughing to the bank.

Here is a brief look at only the top 6 loser funds in the list of 20 funds.

Volatility

The biggest loser fund in the list is the iPath B S&P 500 VIX S/T Futures ETN (VXX). It lost 56.66% YTD and 41.43% over the last five years. This fund is the largest amongst the volatility ETFs/ETNs. These volatility funds move inversely versus the major indices. When the S&P 500 is rising, volatility ETFs will usually decline. When the S&P 500 is falling, volatility ETFs will generally rise. The decline in the fund is understandable, given the strident rise in the major equity indices.

Short or Inverse

The next biggest loser fund is the ProShares Short QQQ (PSQ). It lost 23.16% YTD and 15.18%  over the last five years. This fund is an inverse, or short ETF, which means the fund gains if the Nasdaq 100 index falls, and loses if the index rises. Investors in this fund are bearishly oriented towards the underlying index and seek to make a profit from its expected decline. [Similar comments apply to the fourth biggest loser in the list – the ProShares Short S&P500 (SH), which is down 18.57% YTD and 10.28% on five years.]

Pot

The third biggest loser fund is the ETFMG Alternative Harvest ETF (MJ). This ETF invests in marijuana stocks mostly but also holds the odd Philip Morris or Scotts Miracle-Gro. MJ tracks the Prime Alternative Harvest Index, designed to measure the performance of companies within the cannabis ecosystem benefitting from global medicinal and recreational cannabis legalization initiatives. The ETF has been on a sustained decline since April this year as marijuana stocks lost $35 billion in market value.

Oil and Gas

The sixth biggest loser fund is the SPDR S&p Oil & Gas Explor & Prodtn ETF (XOP). It lost 13.71% in 2019 and 17.21% over five years. The ETF has been on the mat due to a bearish outlook on oil prices because of trade wars, global growth concerns, and shale supply.

Other constituents of the list

• Market neutral funds posted modest losses
• Short-term bond funds gained marginally in a falling interest rate regime

Access the complete list here.

[Related Story:  Liquid Alternative ETFs on Institutional Shopping Lists         ]