From the resurgence of the crypto bull market and the collapse of regional banks to numerous Federal Reserve decisions, the astonishing bull run of the "Magnificent Seven" stocks, and the unceasing hype around AI, there was no shortage of catalysts influencing ETF investors in 2023.
Now, as December winds down, it's an opportune moment to reflect on the ETFs that stood out this year — for better or for worse. But before diving in, a few ground rules: this analysis excludes leveraged/inverse ETFs. Exchange-traded notes, or ETNs are also being left out.
In addition, it's also crucial to understand that discussing the performance of these ETFs isn't about endorsing or criticizing the fund managers' strategies.
Instead, it's a chance to critically examine how different ETFs responded to the year's dynamic conditions, shedding light on the complex interplay of market forces and investment strategies in 2023.
The winners: everything cryptocurrency related
After a tumultuous 2022 in the cryptocurrency world, marked by high-profile collapses and legal dramas, many skeptics were ready to declare a new "crypto winter."
However, 2023 flipped the script with Bitcoin experiencing a significant bull run, soaring from a low of $16,605 on January 1st to a high of $41,251 by December 12th.
ETF investors found themselves at the center of attention amid rampant speculation about the launch of a spot Bitcoin ETF (TSX:EBIT). Major players like Grayscale, Bitwise, BlackRock (NYSE:BLK), and ARK Invest eagerly awaited SEC approval for their filed prospectuses.
This buzz around potential Bitcoin ETFs highlights the growing enthusiasm for blending traditional finance with decentralized finance, positioning ETFs as a bridge between the two. As a result, several cryptocurrency-related ETFs emerged as the big winners of 2023.
The VanEck Digital Transformation ETF (DAPP) surged nearly 190.26% by December 12th, followed by the Valkyrie Bitcoin Miners ETF (WGMI) with a 185.23% gain, and the Invesco Alerian Galaxy Crypto Economy ETF (SATO) rounding out the top three with a 179.79% increase.
However, the volatility of the crypto market means these figures could change rapidly. Looking ahead, January is set to be a pivotal month, potentially seeing the approval (or further delay) of a spot Bitcoin ETF, a development eagerly anticipated by investors.
The losers: a mixed bag
The ETF losers of 2023 represent a range of strategies that didn’t fare well for various reasons, none of which were connected to each other or a broad theme.
First is the Simplify Tail Risk Strategy ETF (CYA), which drew down by around 96.74%. CYA invests heavily in equity-hedging strategies, with a significant budget allocated annually to tail risk hedges like put options and long volatility derivatives.
In a year without a major market downturn, like 2023’s bull market, this ongoing expense on hedges led to substantial, sustained declines in CYA’s value. This ETF is better suited as a short-term hedge rather than a long-term hold in such market conditions.
The second major loser was the iShares MSCI Russia ETF (ERUS), which plummeted by 81.19% and was ultimately delisted and liquidated altogether. The ETF’s downfall reflects the significant risks inherent in single-country investing, especially in emerging markets, as Russian equities became virtually uninvestable due to sanctions following the country’s invasion of Ukraine.
Finally, the Global X Cannabis ETF (POTX) also experienced a smaller, but still significant 48.96% loss. This decline wasn’t driven by a specific negative catalyst but rather by ongoing challenges in the cannabis industry which carried over from 2022. The ETF’s underlying companies struggled to grow earnings and reach profitability, and U.S. legislative progress stalled, dashing hopes raised in 2022 regarding cannabis decriminalization and potential uplistings of American cannabis companies to major US exchanges.
This content was originally published by our partners at ETF Central.