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
| ETF | Claymore BRIC ETF |
|---|---|
| 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 |