The Fed announced another 75-basis-point interest rate hike last week after August’s consumer price index (CPI) rose higher than expected. The latest interest rate hike marked the third consecutive three-quarters of a percentage point rise in a row.
Moreover, Fed officials expect the key rate to end 2022 between 4.25% to 4.5%, up from the previously expected 3% to 3.25%. This is expected to push the economy into a recession.
Looming recession fears have kept the market volatile, with the CBOE Volatility Index climbing more than 80% year-to-date. Economic uncertainties are expected to pressure stocks, some assets, and financial instruments.
Given this backdrop, it could be wise to avoid iShares 20+ Year Treasury Bond ETF (TLT), VanEck Gold Miners ETF (GDX), ARK Innovation ETF (ARKK), Direxion Daily S&P Biotech Bull 3X Shares (LABU), and ProShares UltraShort Bloomberg Natural Gas (KOLD) that might witness a downtrend.
iShares 20+ Year Treasury Bond ETF (TLT)
BlackRock Fund Advisors manage TLT. The fund invests in U.S. dollar-denominated fixed-rate U.S. Treasury securities with a remaining maturity of greater than or equal to twenty years. It seeks to track the performance of the ICE U.S. Treasury Bond ETF by using a representative sampling technique.
With $24.20 billion in assets under management (AUM), TLT’s top holding is United States Treasury Bond 1.875% 15-Feb-2051, which has a 12.50% weighting in the fund, followed by United States Treasury Bond 2.0% 15-Aug-2051 at 7.30%, and United States Treasury Bond 1.625% 15-Nov-2050 at 6.88%. It has a total of 35 holdings.
Its fund flows were negative $265.04 million over the past five days. Its NAV was $103.60 as of September 26, 2022. TLT has declined 30% year-to-date and 29.4% over the past year to close the last trading session at $103.68.
TLT’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.
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 $9.31 billion in AUM, GDX’s top holding is Newmont Corporation (NEM), which has a 13.26% weighting in the fund, followed by Barrick Gold Corporation (GOLD) at 10.54%, and Franco-Nevada Corporation (FNV) at 8.90%. It has a total of 49 holdings.
The fund’s 0.51% expense ratio compares to the category average of 0.48%. Its fund flows were negative $814.40 million over the past year.
GDX has lost 31.7% year-to-date and 26.3% over the past year to close the last trading session at $21.86.
GDX’s overall POWR Rating of F, equating to a Strong Sell. The fund also has grades F for Trade and Buy & Hold and a D for Peer.
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 $7.43 billion in AUM, ARKK’s top holding is Tesla Inc. (TSLA), which has a 10.55% weighting in the fund, followed by Zoom Video Communications, Inc. Class A (ZM) at 8.45%, and Roku Inc. Class A (ROKU) at 7.18%. It has a total of 36 holdings.
The fund’s expense ratio is 0.75%, compared to the category average of $0.50. The fund flows came in at a negative $486.94 million over the past three months. It has a beta of 1.61.
ARKK has declined 60.4% year-to-date and 68% over the past year to close the last trading session at $37.43. The fund’s NAV was $37.36 as of September 26, 2022.
ARKK’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.
Direxion Daily S&P Biotech Bull 3X Shares (LABU)
LABU is managed by Rafferty Asset Management, LLC. It invests directly, through derivatives and other funds, in stocks of companies operating across health care, pharmaceuticals, biotechnology, and life sciences sectors. It seeks to track 3x the daily performance of the S&P Biotechnology Select Industry Index.
With $880.60 million in AUM, LABU’s top holding is Mutual Fund, which has a 14.59% weighting in the fund, followed by Goldman Sachs Trust Financial Square Treasury Instruments Fund Institutional (FTIXX) at 10.10%, and Dreyfus Government Cash Management Funds Institutional (DGCXX) at 5.62%. It has a total of 157 holdings.
Its fund flows came in at a negative $43.58 million over the past three months. The fund’s NAV was $5.99 as of September 26, 2022.
LABU has lost 83.2% year-to-date and 90.3% over the past year to close the last trading session at $6.03.
LABU’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.
ProShares UltraShort Bloomberg Natural Gas (KOLD)
KOLD is co-managed by ProFund Advisors LLC and ProShare Advisors LLC. The fund invests in the commodity markets. It takes short positions and uses derivatives such as futures contracts to invest in the natural gas sector. The fund seeks to track -2x the daily performance of the Bloomberg Natural Gas Subindex.
With $403.80 million in AUM, KOLD’s only holding is Natural Gas, which has a 100% weighting in the fund.
KOLD’s fund flows were negative $35.16 million over the past three months.
KOLD has lost 93.3% year-to-date and 91.4% over the past year to close the last trading session at $16.17. Its NAV was $16.28 as of September 26, 2022.
KOLD’s POWR Ratings indicate its bleak prospects. The fund’s overall D rating translates to a Sell in our proprietary rating system.
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TLT shares fell $0.49 (-0.47%) in premarket trading Tuesday. Year-to-date, TLT has declined -29.10%, versus a -21.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...
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