What should I look for when analyzing ETFs?

Before you begin looking at the available ETF options, you should be clear in your own mind the job the ETF investment is to have within your portfolio. If you have a well-defined job for the ETF, then your ETF search and analysis can be narrowed and be much more manageable. Gone are the days when all ETF structures were the same. In the past few years, as the number of ETFs available to investors has ballooned, it has become more important than ever, and more difficult, to understand how to differentiate the amount of seemingly similar ETFs.

A few considerations investors should analyze, include the following:

  • Your Investment Policy Statement (IPS) will help to guide you in your search for the appropriate ETF. Your IPS can establish guidelines for your ETF analysis by helping to define your risk and reward profile and thus the risk and reward profiles for suitable EFT investments.
  • Look at your total costs. Management expense ratios (MERs) are only one aspect of the total costs of investing in ETFs. Consider all transaction, service/management fees and portfolio turnover.
  • Assess the ETF’s structure. Different structures can bring different investment results. The various structures that have emerged can ultimately lead to liquidity, tradability and tracking error differences, as well as carry unique exposure, risks and income tax implications.
  • Simplify your investment process by focusing on the simple, old-fashioned ETFs. By focusing on the traditional ETFs, those that replicate the performance of long established indexes, you will receive the majority of the benefits of ETF investing with fewer surprises that result from structural differences. When it comes to investing, keeping things as simple as possible will help your success.


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