Selecting the right ETF

Knowledge is power

Now we have explained what an ETF is and how it is created, how do you know which ETF is the right fit for your investment goals?

At iShares, we believe that it is important to give you as much information as possible so that you can make the right investment decisions.

For each fund, we publish a product factsheet that provides information on key areas such as how many holdings each ETF has, which index it tracks, how large the fund is and what its total expense ratio is.

For an example of this, read our FTSE 100 factsheet.

Navigating similar names

Every ETF is unique. This means that two indices that cover the same market – even with similar-sounding names – can differ greatly from each other. This will have implications for likely future performance.

As an example, take two of our funds, the DJ STOXX 50 and the DJ Euro STOXX 50. Although the names appear similar, they are quite different funds.

The DJ STOXX 50 offers exposure to blue chip Eurozone, Swiss and UK companies, whereas the DJ Euro STOXX 50 only offers exposure to blue chip Eurozone companies. Another difference is that the DJ STOXX 50 contains some 71 constituents, whereas the DJ Euro STOXX 50 only has 56 constituents.

This is why we urge investors to look at our index and product factsheets before investing money, so they know exactly what they are buying.

The importance of experience

In a fast-growing sector such as ETFs, there are a huge number of fund providers out there. Size, scale, expertise and commitment can vary significantly across the ETF market. These differences can impact performance in several areas.

ETF providers should have extensive experience of managing index investments, proven portfolio management skills and dedicated research teams. Just as important is the ETF provider’s commitment to educating clients over new developments within the sector.