NEW YORK, January 3, 2023 - In a year marked by widespread declines, Russian and cryptocurrency equity ETFs experienced the most severe losses in 2022, driven by unprecedented market events that devastated both asset classes.

Russian Assets Trapped

Russia’s invasion of Ukraine in February sent shockwaves through global markets, prompting swift financial sanctions from Western governments. This move aimed to isolate Russia economically, resulting in Russian ETFs losing almost their entire value overnight.

Investors faced significant challenges as the Moscow Exchange shut down shortly after the invasion, and MSCI labeled the market “uninvestable.” ETF issuers had to suspend creation and redemption orders, and global exchanges halted trading of Russian ETFs.

According to Bloomberg Intelligence, standalone Russian ETFs saw almost all of their $4 billion in assets under management (AUM) wiped out between the end of January and mid-March as asset managers wrote down the value of their assets. Major asset managers like BlackRock, Invesco, and DWS terminated their Russia ETFs, leaving only a few like the Lyxor PEA Russia MSCI Russia IMI Select GDR UCITS ETF (PRUS), Lyxor MSCI Russia UCITS ETF (RUS), and HSBC MSCI Russia Capped UCITS ETF (HRUD) remaining in Europe.

The 'Crypto Winter' Freeze

The cryptocurrency market faced a severe downturn in 2022, with the collapse of Terra in May and the dramatic downfall of Sam Bankman-Fried’s FTX in November creating one of the harshest “crypto winters” for investors. These events led several crypto issuers, including Bitpanda and ETC Group, to pull their ETPs from the market due to low demand.

Crypto equity products were among the worst-performing ETFs, reflecting broader pain across digital assets and the underlying technology. The VanEck Crypto and Blockchain Innovators UCITS ETF (DABG) fell by 86.6%, while the ETC Group Digital Assets & Blockchain Equity UCITS ETF (KOIP) dropped by 77.3%. The Invesco CoinShares Global Blockchain UCITS ETF (BCHS) also suffered, losing 52.4%.

Bitcoin, the leading cryptocurrency, lost over 64% of its value in 2022. The industry's outlook remains uncertain, with the second-largest crypto exchange, Binance, facing scrutiny after temporarily halting withdrawals of the stablecoin USDC in December.

Thematics Feel the Pain

ETFs focusing on tech-driven megatrends such as cloud computing and artificial intelligence posted significant negative returns. The tech sector faced headwinds including inflation, rising interest rates, and an economic slowdown, impacting ETFs invested in these themes.

The worst-performing ETF in this category was the HANetf Global Online Retail UCITS ETF (PBUY), which fell by 72.2%. Other notable declines included the WisdomTree Cloud Computing UCITS ETF (KLWD) and the Global X Fintech UCITS ETF (FING), which dropped by 54.3% and 53.5%, respectively.

ETFs focused on cybersecurity and artificial intelligence also performed poorly. The WisdomTree Cybersecurity UCITS ETF (CYSE) was down 44.2%, while the L&G Artificial Intelligence UCITS ETF (AIAG) dropped by 41.2%. The Global X Robotics & Artificial Intelligence UCITS ETF (BOTZ) and the WisdomTree Artificial Intelligence UCITS ETF (INTL) saw declines of 43.5% and 43.1%, respectively.

Conclusion

2022 proved to be a challenging year for ETFs, particularly those exposed to Russian assets, cryptocurrencies, and tech-driven themes. As markets continue to navigate these turbulent times, investors remain cautious, seeking stability amidst ongoing economic and geopolitical uncertainties.