When it comes to selecting your exchange traded fund (ETF), it doesn’t have to be like a box of chocolates.
Unlike Forrest Gump, investors do not have to choose an ETF and never know what they are going to get… at least savvy ones don’t.
Certain ETFs just do not live up to their name, and that needs to be something novice investors should consider. Transparency is a key benefit of ETFs – investors would be wise to take advantage of it!
Company weighting in the ETF matters, as well. For example, the Retail HOLDRs (RTH). The retail represented here is Wal-Mart (WMT) with a sloping overweight, at 21.5% of assets, with Home Depot (HD) and Lowe’s (LOW). When you think of retail is this really what you had in mind?
Adam Warner for Minyanville also suggest looking under the hood of Biotech HOLDRs (BBH). There is one stock that makes up 43% of the market cap, Genentech (DNA) and two more that put 80% of the holdings in the top three: Amgen (AMGN) Gilead (GILD).
When you are ETF shopping, always do your research and make sure you know what you are investing in. It’s worth the extra time.
We should note that HOLDRs aren’t quite like ETFs, and it’s important to know the differences.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.