With nearly 1,400 exchange traded funds and notes listed in the U.S., sometimes wading through all the choices can be a daunting task.
Most ETFs are passively managed portfolios that follow benchmarks. However, the tracking indices can use different approaches when it comes to picking and weighting stocks.
Michael Iachini, director of investment manager research at Charles Schwab Investment Advisory, said when deciding to invest in index-based ETFs, individuals need to consider the risks and costs associated with different types of index strategies.
Iachini during a call with reporters Friday said stock ETF indices fall into four main categories: market-cap weighted, equal weighted, fundamental and quantitative. Schwab offers its own ETFs.
He said investors need to understand how the fund’s index works, since its approach can have an impact on performance and the level a risk, and whether the ETF is a “good fit” for the investor.