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These Are the Top 7 Underperform Calls on ETFs

By Anand Chokkavelu, CFA - Updated Apr 6, 2017 at 11:52AM

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You may be surprised.

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Direxion Shares ETF Trust - Direxion Daily Financial Bull 3X Shares Stock Quote
Direxion Shares ETF Trust - Direxion Daily Financial Bull 3X Shares
FAS
$132.70 (5.17%) $6.52
Direxion Shares ETF Trust - Direxion Daily Financial Bear 3X Shares Stock Quote
Direxion Shares ETF Trust - Direxion Daily Financial Bear 3X Shares
FAZ
$19.16 (-5.15%) $-1.04
ProShares Trust - ProShares UltraShort S&P500 Stock Quote
ProShares Trust - ProShares UltraShort S&P500
SDS
$7.35 (-4.17%) $0.32
ProShares Trust - ProShares UltraShort Financials Stock Quote
ProShares Trust - ProShares UltraShort Financials
SKF
$8.55 (-3.72%) $0.33
Direxion Shares ETF Trust - Direxion Daily S&P 500 Bull 3X Shares Stock Quote
Direxion Shares ETF Trust - Direxion Daily S&P 500 Bull 3X Shares
SPXL
$136.95 (6.22%) $8.02
ProShares Trust - ProShares UltraShort QQQ Stock Quote
ProShares Trust - ProShares UltraShort QQQ
QID
$15.80 (-6.18%) $-1.04
Direxion Shares ETF Trust - Direxion Daily Small Cap Bull 3X Shares Stock Quote
Direxion Shares ETF Trust - Direxion Daily Small Cap Bull 3X Shares
TNA
$86.53 (6.84%) $5.54

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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