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It seems over the past couple of years, more and more investors are getting on board with Exchange Traded Funds commonly referred to as ETF’s.
ETF’s have become popular because they offer so many different asset classes, sectors and global regions.
There are an ever increasing number of Exchange Traded Funds to choose from so how does one make a selection.
You could start with a choice from a variety of indexes. In general the plain vanilla traditional indexes outperform the more exotic indexes.
It is recommended that you purchase ETF with greater than 10,000 shares traded each day.
Low expenses are one of the biggest advantages to an ETF. Most broad market equity ETFs have expense ratios below 0.5 %
Market Cap is another selection process “The bigger the better”
ETF holdings and weighting is another consideration, make sure your choice is not top heavy.
Then there are commodity ETFs that are tied to the commodity market. Of importance is the concept of contango. Defined as: the futures price is higher than the expected future spot price. Contango implies that futures prices are falling over time as new information brings into line with the expected future spot price.
Bottom line is as commodity prices increase, the value of the commodity ETF actually decreases.
Personal experience with doing research on exchange traded funds as shown that there are many newer funds with minimal track record and those that been around 5 years or longer have not impressed me with their past performance. So the jury is still out as far as I am concern.
I have and do recommend some ETFs in my clients portfolio and have enjoyed success. It is like any other type of investment, you need to do your homework before committing to a purchase.
Dan Iuculano
