1. Fund’s Longevity
How many years have the fund been effective. Longer history suggests stability and track record to see the results. That said, past data does not imply future performance.
2. Fund Size
At least USD 100 million AUM (Assets under Management).
Larger AUM is better.
3. Expense Ratio
The % of funds that the AM (Asset Manager can withdraw each year to pay for the fund’s operating expenses.
Lower, better. Vanguard is known for having low expense ratios.
4. Tracking Error
The deviation from the underlying index.
Less is better.
5. Underlying Index that the Fund is tracking
Recommend to buy a different ETF strategy from my stock portfolio to reduce asset correlation.
See Sector Holdings and Country breakdown.
Blackrock is known for replicating its ETF around major indices.
6. BID/ ASK ratio
Tighter spread indicate higher liquidity
Also see if BID trades in line with NAV.
ETF posts their NAV at the end of the day, so do check it out and see if BID price is close to the NAV historically.
See the weightage of the top 10 largest stocks in the fund, as their price movement may affect the fund’s performance.
Low holdings turnover is better as this can lead to more transaction costs.
More holdings in the fund is better
On a Personal Note
Comparison amongst top 3 ETF providers namely, Statestreet Global Advisor SPDR, Vanguard and Blackrock’s iShares
Vanguard – lowest expense ratio
Statestreet Global Advisor SPDR – most active traded ETF in the world such as SPDR S&P 500 ETF (SPY)
Blackrock iShares – known for building their ETF around the leading global indices such as S&P 500, Russell, MSCI, Dow Jones
For long- term, passive investors like myself, I would suggest to exclude funds using Leveraged or Inverse Strategies. Go for vanilla strategy ETF as they are the plain, simple ones. 🙂
Since I am also planning to buy into US large cap stocks, I will focus on small cap and non US based ETF’s, such as the Vanguard’s FTSE Emerging Markets ETF.
Cheatsheet for ETF Selection
1. Fund’s Longevity