As the roster of exchange-traded products has grown to nearly 1,300, many investors find themselves with the luxury of multiple options for establishing a position in a desired asset class. There are, for example, four different pharmaceutical ETFs, three homebuilder funds, and even two choices for playing the automotive industry.
Once the ETF universe has been whittled down to funds that fit a given investment objective, there are a number of strategies for determining which of the candidates represents the most efficient way to play. It makes sense, for example, to compare ETFs on the basis of expenses, depth of holdings, liquidity, and tracking error. But many investors are much more basic in their assessments; there is a tendency among ETF investors to gravitate towards the biggest products in favor of smaller or lesser-known funds. If bigger is indeed better, this approach should work well; the size of a product would reflect its general efficiency and usefulness to investors. But in reality, a big AUM total is just as likely to result from a lengthy operating history and strong brand recognition. For ETF investors, following the crowd isn’t always the best path; often, there are better options available for those willing to dig a bit deeper [sign up for a free Pro trial to access the special ETF research report Gold ETFs In Focus]. [click to continue…]
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