Michael Krause doesn’t like to think about the past. The founder of the ETF Research Center has built his business on the idea that it’s all about looking forward.
In the “old days,” investors and advisors analyzed mutual funds by looking at the managers: who they were, their track record, how well they had performed in recent months or years. In other words, the analysis was all focused on the past.
“When you’re looking at a mutual fund, you’re rating the manager of the fund. It’s important to look at past performance,” he says. Krause wants to move away from that.
Thanks to the transparency of exchange traded funds (ETFs), he believes there’s no reason to look anywhere but toward the future to make the smartest decisions for yourself or your clients.
Most ETFs passively track an index and thus lack a stock-picking manager. Krause explains the difference this way: If your fund manager had ridden the financial sector to the bottom, perhaps you’d have a case that the manager wasn’t earning his or her keep. But if the financial ETF sinks, it’s because the index sank, too. For that reason, it’s better to look at the holdings of the ETF to bring the big picture into focus.
“We’re leveraging the biggest benefit of ETFs, which is that they’re transparent,” he says. That transparency – the ability to see what any ETF holds at any given time – is used to evaluate stocks within each fund using fundamental criteria, such as sales, earnings, valuation multiples, to create an overall picture of the ETF. From there, an investor has the necessary information to determine whether that product is right for his or her portfolio.
The analysis ETF Research Center does doesn’t mean it runs a bunch of numbers that lead to a magical rating, but rather, “we are providing as much data and analysis as we can to enable financial advisors to make intelligent, informed decisions.”
Krause’s company runs numbers on 535 plain vanilla equity ETFs.
ETF Research Center’s service is aimed primarily at advisors because that market is primarily buying lots of ETFs for a wide variety of clients with varying goals. Access to the website costs $99 a month.
Visit the ETF Research Center for more information or to subscribe.
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.