Well look no more, we’ll go into the details on what you should look at when picking an ETF for your portfolio.
Throughout this article, we are going to use a website I like to review the performance of ETFs, and pick new ones when relevant https://www.justetf.com/
Okay I found an ETF that can be interesting, now what?
First, let’s start with the overall split of the ETF page. And don’t worry, we’ll go into more details on what those information mean afterwards.
When you arrive on your potential ETF, you will arrive on this page.
👉 The navigation banner will be your best friend here as it will allow you to quickly go to key areas of the page. You can also simply scroll through the page.
If you click on “Chart”, you will get to the performance chart - it gives you an idea, within a specified timeframe, of the performance of the ETF.
Clicking on “Basics” will bring you to the key information to look at when picking your ETF.
And finally, as we will stop there for this article, if you click on “Holdings”, you will reach this page.
Alright, now that we went through the big sections, let’s deep dive on each of those.
The Overview
From top to bottom :
The search bar can be used to find other ETFs/indexes etc… quite self explanatory
“Vanguard FTSE All-World UCITS ETF (USD) Accumulating” - this is the name of the ETF. If you want to learn more on how ETFs are named, you can go to my other article How to read the name of an ETF?
The Identification numbers :
ISIN is the International Securities Identification Number - in any platform you use, you can put this number and you are SURE to get the ETF you are looking at. Using just the name of the ETF can be misleading.
WKN is a German specific identification name - you can forget about it in 99% of the cases
The General Information Part :
TER = the Total Expense Return ie here the ETF costs you 0.22% per annum. As mentioned in the other article What are ETFs and why they should matter to you?, the smaller, the better to mitigate the impact of cost on your yield.
Distribution Policy : it can either be Accumulating or Distributing. When it’s distributing it means the ETF is distributing back to you the dividends it is getting from the securities it is holding. When it is accumulating, it means it’s keeping the dividends to reinvest them in itself. Usually the latter is better from a tax perspective, while a distributing ETF can be beneficial from a cashflow perspective.
Replication : the topic of replication is a complicated one. I don’t want to overcomplexify this article, so if you are interested, you can find my comparison table in the Replication Methods for ETFs.TLDR; don’t worry about that when you begin - as long as you go for the biggest ETFs, this is of very little relevance.
Fund Size : this is the amount of money poured in this specific ETF. Here it is 12b$ - so it’s a lot.
Holdings : it’s the number of “companies” (stocks) that the ETF holds.
The Navigation banner is used to navigate on the page
Current price & evolution intraday - I guess it’s self explanatory no?
Factsheet(s) & KID : those are the key documents you need to have a look at before buying the ETF. They outline all the key information for the ETF, with the risk level and the past performances, along with a sample of the Holdings held.
The Chart
Maybe the easiest to understand as it is quite visual. Just a note : try to assess if you see any patterns. Also, have in mind that past performances do not guarantee future returns.
I personally use the max timeframe possible to assess the past performance of an ETF, and I make my assumptions for the future based on this.
The bigger / broader the ETF you pick, the less volatile it is expected to be.
The Basics
There are some points here that we already covered in th section - so I’ll just skip those.
Index : this is the underlying index the ETF is following. The aim of an ETF is to follow an index as closely as possible. Not more, not less. It won’t try to over/under perform the index, just follow it. For technical reasons, it might slightly lag / be faster than the index it is following.
Investment focus : it gives you the broad topics the ETF focused on. In that case, it means the ETF focuses on Equities (ie stocks) & a Global geography (World)
Fund Size : already covered
Total Expense Ratio (TER) : already covered
Replication : already covered
Legal Structure : no surprises there it’s an ETF. An alternative could have been a mutual fund for example.
Strategy Risk : this is interesting when doing a deep portfolio analysis, but when you are starting with ETF, this is of little relevance. That being said, because we are here to learn, the short explanation is that it gives you an view of the strategy of the ETF when it comes to picking stocks, and holding / selling. In the biggest ETFs, you will see Long-only. Smaller / more exotic ones can have a different strategy.
Sustainability : it gives you an idea whether or not it has a specific ESG angle.
Fund currency : self explanatory. This is important for the next point.
Currency Risk : alright this one is one that many forget, that has little impact in a day to day, but can have a big impact when / if you sell / buy. In this example the fund is in USD. But if you are investing in EUR, the broker / fund will need to exchange your EUR in USD to invest in the fund. The risk is that you are dependant on the exchange rate between the two currencies, and both ways (when you buy and when you sell). This is what “unhedged” means - you are not protected against that change risk. You can find “hedged” ETFs - but they are usually more expensive.
Volatility : it represents the scale of ups and down this ETF had in the past year. From a statistical point of view, it is the standard deviation of a market or security's annualised returns over a given period.
Inception / Listing date : the first time this ETF was made available.
Distribution policy : already covered
Distribution Frequency : if the ETF is distributing, you will see here what is the pace of the distribution of dividends (monthly, quarterly, bi-yearly, yearly)
Fund domicile : self explanatory
Fund provider : the company managing the fund and issuing the security for investors to invest. There are many different providers, but the more you will research about ETFs, the more you will see that there are very big providers that cover most of the market.
So now how do I make a decision based on all this?
Disclaimer : every situation is highly different, and the guidances I will provide below are merely opinions I share. It is not advice in any shape or form.
Now we have reviewed all the key information you need to review before buying an ETF, but what should you do with this. Well here are my thoughts and opinions on how you should see all this, in no particular order :
Start with very broad ETFs, and then narrow down as you build the habits to invest, and when you are confortable enough to build your first investment strategy.For example the ETF I used for the example is one of the broadest you can find in the market.I see many people going for S&P500 - this is not that broad. Just saying.
When you start, focus on :
The size of the fund : the bigger the better - follow the crowd. We are talking about building you a wealth generation machine on the long term, not beating everyone with crazy returns and crazier risks (go to crypto for this 😉)
The TER (cost) : the lower the better - anything above 0.4% in my opinion should be carefully reviewed. It does not mean it’s bad, just that you need to be intentional about it.
Don’t worry about replication methods at the beginning
Currency risk : everyone is different on that one. Personally I don’t go for hedged ETFs, as I am happy taking the currency exchange rate risk if it gives me a lower TER.
Distribution policy : go for accumulating. Unless you have a very specific need for cashflow, and you can manage your taxes accordingly, you should not get a distributing ETF.
Fund Provider : don’t worry if the fund is big, the issuer should be fairly safe so this should not be a criteria for you. Just focus on the other criteria.
And that should be it !
We did not talk about the brokers you can use to invest on the ETF as it would be another article per itself, but try to find brokers that have very low fees on investments for ETFs. Usually the biggest ETFs have offers within European brokers. I use https://www.degiro.ie/ and they have an offer on CORE ETFs for example : https://www.degiro.ie/fees/etf-core-selection.
If you are interested in Degiro, feel free to use my referral link. You get a transaction voucher making your investments free at the beginning and I get 50€ in cash.
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Quentin Vaucelle-Auzel
I am a passionate qualified financial advisor willing to give you more power over your finances !
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