ETFs get a lot of bad press: There are panics about premiums and discounts; worries about ETN credit risk; and concerns about ETFs "collapsing" from being over-shorted. Heck, the Kauffman Foundation figured out a way to accuse ETFs of wrecking American entrepreneurship and seeding a systematic collapse of global financial markets.

Most of these accusations are simply untrue, driven by basic misunderstandings of how ETFs work. What is true, however, is that ETFs can be bad investments. In fact, the ETF landscape is now so broad and so varied that some of them can be terrible investments. It's not because there's anything wrong with the ETFs as a class, but because specific ETFs simply track investment ideas that perform abominably.

We looked at the performance of every nonleveraged ETF and ETN since their inception to find the five that have delivered the worst returns. It ain't pretty.

Number 5: Market Vectors Solar Energy (KWT)
Inception Date: 4/21/2008
Total Return Since Inception: -90.42%
Assets Under Management (4/12/12): $12.69 million
Total Inflows Since Inception: $64.02 million

The Market Vectors Solar Energy (NYSEArca: KWT) tracks the Ardour Solar Energy Index. In the five years that it's been open, the fund has lost 90.42 percent, an annualized return of -45.48 percent per year.

What's driven those returns? A few terrible seasons for solar.

Despite high energy prices, the solar industry has taken it on the chin lately, as a rapidly retrenching European market has hurt demand even as aggressive Chinese government subsidies (which allow solar products to be sold below cost) have hurt margins. Industry leader First Solar (NasdaqGS: FSLR)—KWT's third-largest position, with a 6.28 percent weight—is down 84 percent this year alone.

Will the solar industry turn around? It's not a shoe-in, though recent performance has been OK. FSLR just announced plans to cut its workforce by 30 percent (2,000 jobs).

KWT is a perfectly good ETF—it tracks well, charges reasonable fees and trades well enough for a niche fund. It's just been in the wrong place at the wrong time.

Number 4: Guggenheim Solar (TAN)
Inception Date: 4/15/2008
Total Return Since Inception: -90.48%
Assets Under Management (4/12/12): $61.53 million
Total Inflows Since Inception: $345.80 million

Guggenheim's Solar ETF (NYSEArca: TAN) just edges KWT on the "5 Worst" list, with a total return since inception of -90.48 percent through April 12, compared with -90.42 percent for KWT. Investors seem to favor TAN: It has four times the assets of KWT. But the fund—which tracks the MAC Global Solar Energy Index (SUNIDX)—hasn't performed any better. Investors have poured a net $346 million into the ETF, but only $62 million remains.

Again, TAN is a perfectly fine ETF. Solar has just been a terrible investment.

Number 3: iPath Dow Jones-UBS Natural Gas Subindex Total Return ETN (GAZ)
Inception Date: 10/23/2007
Total Return Since Inception: -92.59%
Assets Under Management (4/12/12): $29.27 million
Total Inflows Since Inception: $276.35 million

The iPath Dow Jones-UMS Natural Gas Subindex Total Return ETN (NYSEArca: GAZ) aims to provide investors exposure to the performance of the Dow Jones-UBS Natural Gas Total Return Subindex. A Sunday-papers glance makes that seem like a great idea. After all, thanks to hydraulic fracturing, natural gas has become abundantly more available in the U.S. It's all over the news. Politicians are excited about the opportunity.

Unfortunately for investors, abundant means cheap, and in the case of natural gas, very cheap. Since GAZ debuted in October 2007, spot natural gas has plummeted from $6.30 per million BTU to just $1.99 per million BTU.

Declining spot prices are not GAZ's only problem. Investors can't buy spot natural gas, so products like GAZ track the natural gas market through the lens of futures contracts. Specifically, GAZ tracks an index of front-month natural gas futures, and front-month natural gas has been in a terrible state of contango for as far back as most investors can remember. That's helped GAZ drop more than 92 percent, while spot gas is down just "68 percent" since the fund's inception.

Will things reverse? While Goldman Sachs and others have called for a reversal in natural gas spot prices sometime in the next six months, the market remains in contango; investors could lose out even if spot natural gas strengthens. Complicating things for investors is the fact that the ETN has actually been closed to new creations since 2009, meaning it often trades at a substantial premium over its fair value. Caveat emptor.

Number 2: iPath S&P 500 VIX Short-Term Futures ETN (VXX)
Inception Date: 1/29/2009
Total Return Since Inception: -95.21%
Assets Under Management (4/12/12): $1,565.02 million
Total Inflows Since Inception: $4,660.48 million

The iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX) is designed to provide exposure to the performance of short-term futures linked to the CBOE's S&P 500 Volatility Index, better known as the "VIX."

When VXX launched in 2009, there was a great deal of excitement. Finally, people thought, I can hedge myself against market volatility! Research reports argued for a long-term allocation to VIX; short-term traders cheered; money piled in. Unfortunately, most of that money never came out: Since inception, VXX is down 95.21 percent.

What happened? Two things.

First, notwithstanding the hyperbole you hear every day on CNBC, S&P 500 volatility is actually down. Despite consternation about Europe and slow employment growth in the U.S., spot volatility—which is based, in the case of VIX, on activity in the S&P 500 options market—is down 66.56 percent since VXX launched. Worse, like natural gas, VXX has suffered mightily because VIX futures have been in very sharp contango, making VXX lose ground even faster than the rapidly declining VIX index itself.

The outlook from here is dim. While volatility could spike at any time, VIX futures remain in extraordinarily sharp contango. Based on the shape of the futures curve, if actual volatility stays flat over the next year, investors in VXX will lose … well, basically, all of their money … to the negative roll yield.

VXX is a great trading vehicle—perfect for investors who want to make a one-day or two-day bet on volatility. But it has been, and for now remains, a terrible investment.

Number 1: United States Natural Gas (UNG)
Inception Date: 4/18/2007
Total Return Since Inception: -96.23%
Assets Under Management (4/12/12): $711.65 million
Total Inflows Since Inception: $4,307.46 million

The winner … or should I say the loser … of the worst-performing ETF contest is the United States Natural Gas ETF (NYSEArca: UNG).

Like most of the other products profiled here, UNG is actually a great ETF. It tracks well, trades extraordinarily well and provides exactly the exposure it claims to provide: exposure to front-month natural gas.

Unfortunately, as mentioned in the GAZ writeup, that's been a terrible place for investors to be. With sharp contango and declining prices, UNG has dropped 96 percent of its value since inception. Investors have poured $4.3 billion in cash into the ETF, and it only has $712 million left.

Performance has been so bad, in fact, that UNG has now had to do two reverse splits: a 2-for-1 split in March 2011, and a 4-for-1 split in February of this year. The fund closed today at $14.58; if current trends continue, another split could be necessary in a few more months.

Of course, if gas prices reverse and the market shifts into backwardation, UNG could go to the moon. And if that sounds unlikely? Well, you can always short it.

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