Discerning Investors Want to Know What's Inside Their ETFs

Exchange traded funds allow anyone to gain exposure to broad or specialized segments of the market. The investment vehicle provides diversified exposure to assets, but it is still important to know what an investor is holding.

“While investors have an increasing number of tools to help them sort through the ETF universe, we are pleased that many of them agree with CFRA that what’s inside matters a lot,” Todd Rosenbluth, Director of ETF Research of CFRA and BETH PISKORA and Senior Content Director at CFRA, said in a note.

According to a recent survey, CFRA found that 59% of investors purchased a smart-beta ETF in 2016, with 97% saying they plan to maintain or add to smart-beta ETF positions in 2017, compared to 57% last year.

Moreover, CFRA discovered that investors are increasingly scrutinizing their ETF investments beyond a simple assessment of past performance to also incorporate an analysis of costs, risks and the likely future prospects of individual holdings, Rosenbluth said.

According to a Brown Brothers Harriman/ETF.com survey, among the biggest deciding factors when selecting an ETF, 38% of respondents pointed to the “exact exposure of the underlying index,” followed by 25% looking to the expense ratio. About 11% said historical performance was the most important deciding factor, followed by 8% tracking error and 4% for both tax efficiency and trading spreads.