Many investors are sitting on the sidelines as the markets continue to zig and zag, but there’s going to come a time when they’ll want to get back in, putting exchange traded funds (ETFs) in the spotlight.
There are so many ETFs, though, that picking one or three can sometimes be challenging work, especially for newbies.
Here are five factors to measure an ETF by, to help you determine if the fund will work for you.
Tushar Mathur on iStock Analyst suggests:
- Level of assets. There is a minimum level of assets needed to make a fund a considerable investment choice. A common level is at $10 million to indicate investor interest.
- Trading activity. The higher the trading volume for an ETF the more liquid it is, with a tighter bid-ask spread.
- Underlying index/asset. Consider what index the fund is tracking, and the broader, the better.
- Tacking error. Minimal tracking error is better, meaning the fund is sticking to its underlying index as best as possible.
- Market position. The “first-mover” advantage is desirable because the first provider to market usually has the best chance of garnering the most assets before the masses gravitate to it.
We’d like to add to this that investors need to consider if a fund is right for them by thinking about risk and how it fits into their overall investment strategy. Don’t just get a fund just because someone told you it was good – investors can have very different goals, time horizons, risk profiles and interests. Consider your own needs first.
Also, stick to your discipline and look at those areas that are trending up by watching when they cross above their 200-day moving average.
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.