Bottom Line: The ETF universe is vast and growing; chances are you can find multiple products that align with your objective.
76. How To Evaluate ETFs
Deciding between potential ETF investments ETFdb Pro Members Only is a process that will be different for every investor; the appropriate product is not a universal designation, but something that depends on tax circumstances, risk tolerance, and other factors. There are, however, a few metrics that can be useful when comparing potential ETF investments:
Expenses: This metric is pretty straightforward: lower expense means higher bottom line returns.
Liquidity: Though volume isn't the bottom line in liquidity, this is still an important metric for many investors (especially the little guys). Generally speaking, higher volume makes it easier to get in or out of a position at a fair price.
Volatility: The volatility of comparable products might be important for some investors; smaller fluctuations in value can reduce risk overall.
Dividend Yield: For most investors, the dividend yield delivered is a critical consideration in picking between similar funds.
Concentration: With equity ETFs in particular, evaluating the depth and balance of the underlying portfolio can be key. Though there is no guarantee that lower degrees of concentration will lead to superior performance, most investors would prefer to have a more balanced ETF over an extremely top-heavy one.
Performance: Some investors evaluate ETFs based solely on historical performance; others give it no weighting. The correct answer is probably somewhere in between: historical performance should be considered, but not as the only factor.
A subscription to ETFdb Pro includes access to Realtime Ratings for 1,400+ ETPs on each of the aforementioned metrics, evaluating how each stacks up to its peer group.