These Are the Top 7 Underperform Calls on ETFs

As an investor, it doesn't pay to follow the crowd.

In this series, though, we highlight a possible exception -- the collective wisdom of our CAPS community. Read the next section if you're unfamiliar with our methodology. Skip it if you want to go straight to the results.

Why this crowd is different
Jumping into a stock because your rich neighbor did, or because you heard about it from your friend's uncle who used to work on Wall Street, or because CNBC has been talking about it nonstop is a recipe for disaster.

If there's one thing I've learned as a stock analyst, it's that any stock can be gussied up to sound like a world-beater. If there's a second thing I've learned, it's that being a smart person doesn't make you a good investor.

In the hands of a smart person with good communication skills, the never-were and never-will-be stocks sound like tickets to instant fortune. The ancient Greek philosophers made the distinction between rhetoric and knowledge. The former is convincing; the latter is true.

That's why we factor in the track record in our Motley Fool CAPS community. We invite everyone to give stocks an outperform (akin to a "buy" call) or underperform rating (akin to a "sell" call) in CAPS. We then use those opinions to calculate a rating for each stock -- from one to five stars (five being the best). But -- and this is a big distinction -- we give more weight to the opinions of folks whose picks have performed well in the past.

The top 7 ETF underperform calls
So, with that methodology as prelude, I present to you the seven one- and two-star ETFs with the most CAPS community member underperform ratings (I used minimum net assets of $100 million). Remember, stocks are rated on a five-star scale by our CAPS community, so one- and two-star stocks are consensus underperforms.

Company Name

 Net Assets (in millions)

52-Week Price Change

CAPS Rating (out of 5)

Underperform Picks

ProShares UltraShort S&P500 (NYSE: SDS  )

     $3,734

(20%)

*

503

Direxion Daily Financial Bull 3X Shares (NYSE: FAS  )

     $1,871

(77%)

*

477

ProShares UltraShort Financials (NYSE: SKF  )

      $612

(15%)

*

446

Direxion Daily Financial Bear 3X Shares (NYSE: FAZ  )

      $972

(29%)

*

441

ProShares UltraShort QQQ (NYSE: QID  )

     $1,065

(27%)

*

428

Direxion Daily Small Cap Bull 3X Shares (NYSE: TNA  )

      $559

(10%)

*

370

Direxion Daily Large Cap Bull 3X Shares (NYSE: BGU  )

      $212

(9%)

*

366

Source: Motley Fool CAPS.

Each of the underperforms above are leveraged ETFs meant to amplify the daily returns in the underlying index by two to three times. You may be a little confused that both the bullish and the bearish ETFs lost money over the past year. Remember that these ETFs are meant to track the daily movements of the indexes, not the long-term performance. Read this article by my colleague Rick Munarriz for his insightful warnings on these instruments.

Our CAPS community has rated each of these ETFs one star (as opposed to these ETF favorites). Do you disagree? Make your thoughts known in CAPS by clicking here. Or just go there to do further research on one of these stocks.

If you'd like some more reading, check out The Market-Beating Secret Buffett and Lynch Won't Tell You.

Anand Chokkavelu doesn't own any of the ETFs mentioned. The Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 30, 2010, at 12:30 PM, log102039 wrote:

    Try using a 3 or 4 month comparison of FAZ to the SP 500...Faz blows away the 500!

  • Report this Comment On August 30, 2010, at 2:22 PM, player23m wrote:

    I have FAZ UP 218.06% since July 2009. A 29% dip would be quite irrelevant. Besides, the predictions are clearly wrong. The BULLS AND BEARS can't BOTH DROP!!! They are the reverse of each other!

    Also all these SHORT calls. Who in the world really thinks the market will get better in the next year? 15%? 30%? That would be a full recovery in a year. Way too optimistic if you ask me.

    This just goes to show the uselessness of such calls on this site. I doubt most of those people even know the difference between the 3: "Bull," "Bear," & "Short." What a joke!

  • Report this Comment On August 30, 2010, at 3:11 PM, FASnFAZrLOSERS wrote:

    I see a lot of posts about FAS or FAZ from back in early 2009. Ok you guys have done well. But the Russell 1000 (IWD) does not split these two like you might expect. Look at IWD compared to FAS and FAZ year to date. Someone is skimming or the fund expenses are very high. Does not pass the smell test.

  • Report this Comment On September 17, 2010, at 4:37 PM, player23m wrote:

    True, but the market in general doesn't pass the smell test. I would never invest at all if I only went by my nose. In fact, usually the things that smell the worst end up making the most money, only when something isn't right do stocks make unreasonable gains/loses, otherwise costs would closely tie to values for nearly every ticker taking all the gamble out of investing...

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