Investing Insights

How to choose an ETF

Selecting the right product

How do you know which ETF is the right fit for your investment goals, risk tolerance and investment time horizon? We believe that it is important to give you as much information as possible so that you can make the right investment decisions.

What is your investment objective?

Things to consider

Navigating similar names

Every ETF is unique. This means that two indices that cover the same market – even with similar-sounding names – can differ greatly from each other. This will have implications for likely future performance.

This is why we urge investors to look at our index and product factsheets, as well as the Prospectuses and the KIIDs before investing money, so they know exactly what they are buying.

The importance of experience

In a fast-growing sector such as ETFs, there are a huge number of fund providers out there. Size, scale, expertise and commitment can vary significantly across the ETF market. These differences can impact performance in several areas.

ETF providers should have extensive experience of managing index investments, proven portfolio management skills and dedicated research teams. Just as important is the ETF provider’s commitment to educating clients over new developments within the sector.

Find an ETF that tracks an index to reflect your investment strategy

How much are you willing to pay to track the index you have selected?

Make sure you know how your ETF is structured

Physical replication

The manager of the funds physically buys and holds all or a representative subset of the shares that make up the index.

Positives
More transparent, easier to understand

Negatives
Can limit access to certain markets and exposures

Synthetic replication

The manager uses derivatives–a contract between two parties related to a particular asset–rather than physically buying the assets.

Positives
Enables access to markets and exposures that physical replication may not.

Negatives
Counterparty risk–investors could be exposed to the risk that a single financial institution–the counterparty–may not be able to pay the index return.

Share article:

Let us know your thoughts

Your email address will not be published. Required fields are marked *