Oil hit six year lows Thursday, but some exchange traded funds (ETFs) fell even lower.
ETFs that track commodity companies’ shares are falling harder than commodities, being dragged down by layoffs and profit hits, reports the Wall Street Journal. State Street’s SPDR S&P Oil & Gas Exploration & Production ETF is down 23% this year. The SPDR S&P Metals & Mining ETF tanked 36%. And the Market Vectors Gold Miners ETF hit a record low this week after dropping 29%. In comparison, the Bloomberg Commodity Index is down 13% this year.
Commodities companies have been suffering from high debt and costs, and little growth to help them profit. Companies are trying to cut costs, but to little avail. Capital spending by energy and materials companies is expected to fall 14% in 2015 and another 5% in 2016. Debt will take some time to pay off, as companies borrow heavily to build mines and businesses. Writes the Wall Street Journal:
“Investors realize, or at least believe, that there’s no quick turnaround here,” said Tobias Levkovich, chief U.S. equities strategist at Citigroup.
Photo: Mark Herpel