Not all ETFs are created equal

There are over 1,000 Exchange Traded Funds available to investors today but only a select few meet our standards. We review new ETFs regularly to add to our shortlist of “investable” ETFs. The following table highlights the factors that we evaluate when considering the use of an ETF

Criteria for approval of Individual ETFs
Fidelity to Madate Liquidity is Sufficient No Futures or Leverage
Volatility is below 2x S&P500 ETF AUM is above Peers Turnover is Low
Beta is below 1.5xS&P500 Fees is below Peer Average Manager is of Quality

Here’s one example of an ETF that does not qualify for our shortlist

Criteria: Does not have Fidelity to Mandate and is Insufficiently diversified
Expectation: This ETF invests in Brazillian, Russian, Indian, and Chinese companies
Reality: This ETF holds only ADRs and misses many major BRIC firms that trade only on their local exchanges. The ETF is heavily weight to Brazil (55%) and China (30%). Two firms (Petrobrasand Vale) are 30% of the ETF. Russia and India are ignored.
Solution: Use broad emerging market ETFs suchas VWO for core exposure and overweight selected countries using ETFs such as EWZ (Brazil) and FXI (China)

Some of the ETFs currently on our shortlist, divided by core Strategic ETFs and satellite Tactical ETFs, include:
Strategic ETFs Symbol Tactical ETFs Symbol
Mega-Cap US Equity OEF Coal Producers KOL
US Preferreds PFF South Korea Equity EWY
US Equity Hedged XSP Small Cap US Equity VB
US Equity Unhedged IVV China Equity FXI
Canada Preferreds XDV Australia Equity EWA
Canada Equity XIU Brazil Equity EWZ
Emerging Equity EEM India Equity EPI
Long US Treasuries TLT East Asia x JapanEquity ILF
Mid GOC Bonds XBB Gold Bullion IAU
Long GOC Bonds XLB Short US Equity SH
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