It's been tough to lose money on ETFs this year — nearly every actively traded U.S. diversified ETF is up in 2025 so far. But there are a tiny number of unlucky ETFs sinking amid a rising tide.
Six diversified ETFs with solid trading volume, including Simplify Volatility Premium ETF, Pacer Trendpilot US Mid Cap ETF and Direxion HCM Tactical Enhance U.S. Equity Strategy ETF, are down this year on a total return basis, says data from Morningstar Direct going into Sept. 10.
This puts these funds in a tough spot. On a total return basis, 276 of the 282 U.S. diversified funds doing at least 50,000 shares in average daily volume have positive returns this year. And missing out on a year like this stings. The S&P 500 itself has returned more than 11.5% this year including dividends.
So how do you lose money when everyone else, it seems, is making it?
Be Cautious Of Market Timing
Todd Rosenbluth, director of research at TMX Vetta Fi, says some of the ETFs faltered as they tried to use market timing to maximize gains — and got the timing wrong.
Three of the ETFs that lost ground this year, namely Pacer Trendpilot US Large Cap and Direxion HCM Tactical and Pacer Trendpilot US Mid Cap ETF, "shift from equity exposure to cash and back based on certain signals," Rosenbluth said.
Take Pacer Trendpilot US Mid Cap as an example. The fund's total return is a negative of nearly 3% this year. The ETF invests in midsize stocks when they're trending up, pulls back during short-term downtrends and shifts to Treasuries during long-term downtrends.
When the S&P MidCap 400 Total Return index closes over the 200-day moving average, the fund puts 100% in the MidCap 400. When the index closes below its 200-day moving average for five straight days, the ETF invests 50% in the S&P MidCap 400 and 50% in three-month Treasuries. And if the index stays below the 200-day moving average for an additional five days, the ETF shifts entirely to three-month Treasuries.
The problem is, staying invested has done better. The S&P MidCap 400 is up more than 4.6% this year. "Those (timing) funds have not rewarded investors as the signals sent the wrong message to be out of the market, Rosenbluth said. "Staying invested in equities was the correct decision. Sometimes the more complicated strategies do not serve investors well," he said.
Beware Wrong Sector Bets
Simply owning a broad index exposes your portfolio to the 11 S&P sectors. Tweaking those sector positions can backfire if you choose wrong.
Consider Invesco S&P SmallCap High Dividend Low Volatility ETF. The ETF loaded up on small real-estate plays. More than 50% of XSHD is in real estate. That's dramatically higher than the 8.8% position in real estate in Vanguard S&P Small-Cap 600 ETF.
And yet, the Vanguard small-cap ETF returned more than 3% this year. And the even broader iShares Russell 2000 ETF returned nearly 8%. Invesco S&P SmallCap High Dividend Low Volatility, in contrast, has a negative return of nearly 2%.
"XSHD is a small cap multi-factor ETF that is heavily exposed to ... real estate stocks," Rosenbluth said. "The iShares Russell 2000 ETF ... had significantly less exposure to real estate and much more health care and information technology."
U.S. Diversified ETFs Down This Year
Going into Sept. 10
| Name | Ticker | Market return YTD % | Expense ratio % |
|---|---|---|---|
| Simplify Volatility Premium | SVOL | -3.08 | 0.72% |
| Pacer Trendpilot US Mid Cap | PTMC | -2.95 | 0.60% |
| Direxion HCM Tactical Enh. U.S. Eq. Strat. | HCMT | -1.83 | 1.17% |
| Invesco S&P SmallCap Hi Div Low Vol | XSHD | -1.79 | 0.30% |
| Pacer US Small Cap Cash Cows 100 | CALF | -0.58 | 0.59% |
| Pacer Trendpilot US Large Cap | PTLC | -0.15 | 0.60% |
Source: Morningstar Direct
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