1. How well do you know the ETF manager?
Like baseball managers, all fund managers need expertise in their field of
play. Look at a manager’s experience and commitment to ETFs. Review their
track record with all investments. What insights and tools are available
from the manager to help navigate the ETF marketplace, build portfolios,
and execute strategies? It takes size, skill, and expertise from a manager
to realize the benefits of ETFs for investors.
2. What’s inside the ETF?
Look under the hood to see an ETF’s asset exposure. Is the targeted
exposure broad or narrow? Check the depth of coverage of asset classes and
look for any overlap or gaps with other index products or active funds.
If the ETF tracks an index, decide whether you want industry-standard
indexes as benchmarks, or a more specialized index. Also, is the ETF’s
index “trackable”? Is it comprehensive and representative of the investment
opportunity? And consider the index methodology, which impacts the
underlying exposure of the ETF.
The frequency of disclosure of an ETF’s holdings gives you a regular peek
under the hood. The level of transparency can help you manage risk.
3. Can you trade when you need to trade?
Liquidity matters for most investments, but especially ETFs. The ability to
trade ETFs quickly and easily on an exchange is often touted as a major
benefit. However, a common misconception is that an ETF’s average daily
trading volume alone determines its liquidity. In reality, the best measure
of an ETF’s liquidity is determined by the liquidity of its underlying
securities. An ETF’s bid-ask spread is a preferred measure of liquidity
because it includes the liquidity of its underlying securities and the
costs associated with the creation and redemption process.
Look deeper than trading volume to understand the true liquidity of the
4. What does the ETF really cost?
The last factor to consider is cost, naturally. Reducing investment costs
is, understandably, an important consideration for many investors. Given
investor expectations and ETF structural advantages, the right ETF for you
should be cost effective. So look at what you would get from the ETF for
what you would pay. Costs vary because investor benefits vary from ETF to
Worth the work
These four criteria will give you a lot to consider, but then selecting the
right ETF is an important investment decision. It’s worth putting in the
work up front. There is help, because your advisor can assist you with ETF
assessments, answer questions, and provide information. Your advisor can
also update you on innovation in the marketplace, such as the expanding ETF
suite of Mackenzie Investments, which already offers
Mackenzie Maximum Diversification ETFs and
Mackenzie Active ETFs.
The four criteria – an ETF’s manager, exposure, liquidity, and cost – can
support your game plan to make the right choices when investing in ETFs.
This is an opportunity for you to learn more about ETFs and develop your
relationship with your advisor.
Michael Cooke is Senior Vice President, Head of Exchange Traded Funds,
This article first appeared in the Fall 2017 issue of
Your Guide to ETF Investing, published by Brights Roberts Inc. Reprinted with permission.
Notes and Disclaimer
© 2017 by Fund Library. All rights reserved. Reproduction in whole or in
part by any means without prior written permission is prohibited.
The content of this article (including facts, views, opinions,
recommendations, descriptions of or references to, products or securities)
is not to be used or construed as investment advice, as an offer to sell or
the solicitation of an offer to buy, or an endorsement, recommendation or
sponsorship of any entity or security cited. Although we endeavour to
ensure its accuracy and completeness, we assume no responsibility for any
reliance upon it. Commissions, management fees, brokerage fees and expenses
all may be associated with Exchange Traded Fund investments. Please read
the prospectus before investing. Exchange Traded Funds are not guaranteed,
their values change frequently and past performance may not be repeated.