ETF Update

Volatility, Natural-Gas, Food Funds Slump

Stock quotes in this article: VXX , UNG , GRU , JJG , COW , JJE , GAZ , USO  

NEW YORK (TheStreet) -- Re-crossing the Dow 10,000 threshold signals a retreat of bearishness in the stock market, adding confidence to U.S. consumers and businesses. The CBOE SPX Volatility Index, a measure of bearish sentiment, has steadily dropped back to pre-panic levels over the past year.

No exchange traded product did worse than the iPATH S&P 500 VIX Short-Term Futures ETN(VXX) in the third quarter. It fell 27%. (Inverse and leveraged funds were excluded.) The exchange traded note currently bets investor money on CBOE VIX October and November 2009 futures contracts, each day rolling more of the October contracts into November. This was the wrong time to gamble on higher volatility.

The commodity plays of worst performers fall into one of two categories: energy or food. Of the five energy funds listed, the United States Natural Gas Fund(UNG) lost 15% of its value last quarter as the spot price of Henry Hub natural gas declined 11.4%.

The United States Oil Fund(USO) leaked 4.6%, even with the spot price of West Texas Intermediate crude oil gaining 1% for the quarter due to the inherent risks of the fund's investment strategy, including risks associated with trading futures contracts. The iPath Dow Jones-UBS Energy Subindex Total Return ETN(JJE) has an index mixture of 51% West Texas Intermediate crude, 24% natural gas, 14% unleaded gasoline and 11% heating oil. The basket combined for a loss of 5.2% in the third quarter.

If the ninth-worst performing ETF, the PowerShares DB US Dollar Index Bullish Fund(UUP), continues to slide and gasoline inventories continue to tighten, the broader Energy Subindex ETN could become the best of the worst performers in the coming months.

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