In the past three years, the popularity of ETFs (exchange traded funds) has exploded. ETFs allow investors and traders alike to easily purchase a basket of companies as well as trade commodities and currencies through a typical brokerage account. The benefits of trading like a stock, low expense ratios, easy diversification and tax efficiency have all contributed to the demand for this relatively new trading vehicle.
First it is important to evaluate the ETF. What does it track, how is it constructed, what’s inside and how long has it been around are excellent questions. It is also a good idea to know the expense ratio so you know how much an ETF costs. This amount is skimmed from your account and goes towards paying a fund’s total annual expenses, in addition to the fees charged by your broker for trading stocks.
Perhaps the easiest way to assess an ETF is using Yahoo! Finance. Here you can see the dividend yield, value of the ETF’s net assets, a summary of the fund and what it tracks, expense ratio, performance over several different periods, top 10 holdings, average P/E ratio for the stocks being held, as well as risk assessment.
To find an ETF that best meets your investment objectives, visit: http://screen.morningstar.com/ETFScreener/Selector.html
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