Bloomberg published an article on March 11 about the GraniteShares 2x Long NVDA Daily ETF (NASDAQ:NVDL). Without further reading, I immediately thought this was one of the exchange traded funds (ETFs) to avoid as the S&P 500 hits all-time highs. I’ve got nothing against the good people at GraniteShares. I just don’t think it’s a good idea for average investors to use leverage in its investments to achieve juiced-up returns.
The ETF provides investors with twice the daily return of NVDA. It’s become very popular as Nvidia’s (NASDAQ:NVDA) fortunes have risen from artificial intelligence (AI) related revenues. From March 4 to March 8, NVDL brought in $252 million in new money. According to Morningstar.com, it has $1.9 billion in net assets.
There are two other things I don’t like about the ETF.
First, it charges 1.15%, or $115 per $10,000 invested. GraniteShares will argue that the cost of arranging swap agreements with financial institutions makes the cost of active management worth it. Fair enough. It pledges 35 to 45% of its net assets as collateral to obtain the swaps. You’ll want to read the prospectus before buying. There are risks involved beyond the typical actively managed ETF.
Secondly, single-stock ETFs have only been around since the summer of 2022. There hasn’t been enough time to study whether they do what they should. I’d avoid them.
Here are three other ETFs to avoid.
iShares Virtual Work and Life Multisector ETF (IWFH)
iShares Virtual Work and Life Multisector ETF (NYSEARCA:IWFH) was launched at the height of the pandemic in September 2020. In 42 months it’s gathered just $3 million in net assets. That’s just one of the reasons I put it on the list of ETFs to avoid.
As the ETF’s name suggests, it invests in companies helping keep remote work alive and well. It tracks the performance of the NYSE FactSet Global Virtual Work and Life Index, a collection of U.S. and non-U.S. companies exposed to the “full value chain of virtual and remote entertainment, wellness and learning industries,” its website states.
IWFH is expensive for a passive ETF, at 0.47%, or $47 per $10,000 invested. In August 2023, I recommended the JPMorgan Equity Premium Income ETF (NYSE:JEPI), an actively managed ETF that charges only 0.35%, 12 basis points less than IWFH. At the time, JEPI had $28.7 billion in net assets. Today, it has $33 billion. Over the past year, performance-wise, it’s tied with IWFH. JEPI is intended to be a low-risk fund. IWFH should be beating it by a lot more.
Secondly, the communication and technology sectors account for nearly 70% of its net assets. It’s essentially a tech fund. You could buy State Street’s (NYSE:STT) communication and technology ETFs instead at 0.09%, 26 basis points less, with both outperforming IWFH by five-fold.
SPDR S&P Regional Banking ETF (KRE)
The contrarian in me says the SPDR S&P Regional Banking ETF (NYSEARCA:KRE) is an opportunity to bet on the down-and-out U.S. regional banking industry without losing your shirt.
Down 9.8% in 2024 and 3.9% over the past five years, it’s most certainly underperformed relative to its stablemate, the SPDR S&P Bank ETF (NYSEARCA:KBE). KBE has a regional bank weighting of 60.35%, but still has managed to deliver a 5-year return of 10.35%, 13.47 percentage points better than KRE.
As I recently discussed, bank stocks are a tricky breed. They’re not like consumer discretionary stocks, where it’s much easier to determine a business’s future success. As we’ve seen with New York Community Bank (NYSE:NYCB), there are many moving parts, making it much tougher to delineate between a quality bank and a bank about to fail like SVB Financial.
Now, if you must dabble in regional bank stocks, do it through KBE or KRE, where diversification will help you.
ProShares Global Listed Private Equity ETF (PEX)
I have recommended private equity-focused ETFs in the past. I wish I hadn’t. Here are three reasons why.
First, the fees are high, especially when you consider the sub-par performance. ProShares Global Listed Private Equity ETF (BATS:PEX) has existed since 2013 and charges 2.79%. Invesco Global Listed Private Equity ETF (NYSEARCA:PSP) launched in 2006. It managed to gather $225 million because it charged a more reasonable 1.06%.
Secondly, both ETFs invest in many Business Development Companies (BDCs). Securities regulations require them to return at least 90% of their taxable income to shareholders. That’s great for income as they tend to invest in senior debt of middle-market companies rather than equity. But it doesn’t deliver the level of equity exposure private equity is known for.
Lastly, performance has been sub-par, as I mentioned previously. Over the past five years, PEX is down 12%. PSP is up 12.4% and the S&P 500 gained 84.29% over the same period. KKR & Co (NYSE:KKR) and Blackstone (NYSE:BX), two of the major holdings of PSP, are up 304.7% and 263.8%, respectively.
If you’re going to invest in private equity, go direct. Otherwise, consider them on the list of ETFs to avoid.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
