Doing a little research. I began a deep dive into smart beta funds by reviewing the fund managers’ experience in ETFs and the financial markets. Smart beta, an investment approach blending aspects of both active and passive investing, is a relatively new concept in the world of ETFs. So I wanted to be sure that the company I went with not only understood passive index investing, but was also backed with an international research team to select the right stocks for the funds.
Checking the price tag. I then examined the costs associated with the fund. It’s important to not only look at the fund expenses, but also performance and trading commissions. You should be able to find expenses and performance costs of the fund you’re looking at on its website.
Narrowing the list of choices. Soon, I was able to whittle the selection to three ETFs. I compared their stock holdings, also listed on the funds’ websites, to create a diversified portfolio with minimal overlap. This ended up being pretty simple, and I now have smart beta in my personal account to complement my other traditional investments.
After going through this process, I can empathize with investors trying to do this research on their own. But by focusing in on your goals, the investment company and the total costs, it’s easier to streamline the process into something manageable.
More good news: this industry is developing new tools and resources to enhance the personal investor’s experience. I’m incredibly passionate about ETFs and not surprised that the sector saw a record flow of new investments in 2014. As the space evolves, I imagine more people will discover that investing in ETFs can be easy and rewarding.
Amy Belew is a Managing Director and head of Global Business Intelligence for Global iShares. She writes about ETF trends for The Blog, and you can read more of her posts here.