A new rating system to help financial advisors understand and compare exchange-traded funds was unveiled this week at the 4th Annual Inside ETFs Conference.
Held at the Westin Diplomat Resort in Hollywood, Fla., the conference was attended by about 1,000 people and approximately 60 exhibitors. The show has grown steadily over the years and is viewed as the go-to place for financial advisors to learn about ETFs. Sessions this year covered more than 20 topics, including some on choosing ETFs, comparing ETFs and mutual funds, selecting region-specific and commodity plays, and undertstanding ETF risks.
Many at the show were interested in the new A to F ratings system introduced by the conference founders and organizers, IndexUniverse, which provides news, data and research on ETFs and indexes.
More recently the company started ETF Analytics, which developed the ETF ratings system. Matt Hougan, president of ETF Analytics, and Dave Nadig, IndexUnverse's director of research, introduced the product to the crowd.
Entering beta testing now, ETF Analytics' research and rating system will likely be available for financial advisors to buy in the spring or summer, said Elisabeth Kashner, CFA, the company's senior vice president of analytics who oversees eight other analysts. The company has not yet finalized pricing for the new system, she said.
ETF Analytics first is focusing on rating sector ETFs and eventually plans to grade all exchange-traded products, which now include about 1,100 ETFs and exchange-traded notes. The company is referring to both as ETFs, as is commonly done by investors, the company said.
ETF Analytics' classification and ranking system is not primarily aimed at evaluating fund performance. Instead, it focuses more on what's under the hood of an ETF so advisors can be sure they're getting the exposure they want in a particular sector.
"Our product is strictly focused on beta exposure ... It's to give our users a tool to get the market exposure they intend to get, and also to understand the cost of getting that exposure," Kashner said.
She noted there are very specific risks and rewards associated with ETFs that may or may not exist in the rest of the market. For example, ETFs have a different creation/redemption process and different challenges with keeping their price in line with their net asset value than mutual funds. They also can be traded during the day like stocks but unlike mutual funds.
ETF Analytics' new system grades ETFs based on three overall metrics: efficiency, tradability and fit.