An ETF screener is a digital tool or website that helps users identify exchange-traded funds (ETFs) by applying specific search parameters to filter the available options.
ETFs are investment funds that comprise a portfolio of securities or stocks that replicate the performance of a particular index, sector, or asset class. They may track indices such as the S&P 500, or a collection of bonds or commodities.
Investors in ETFs do not directly own the underlying assets but have indirect ownership through the fund. Unlike mutual funds, ETFs trade like stocks, offering lower costs and greater liquidity. This makes ETF shares relatively easy to buy and sell with minimal delays in execution.
With over 1,800 ETFs available and more than 150 new ones introduced annually, selecting the best ETF for your portfolio can be challenging. So, how do you navigate this growing ETF landscape?
One major advantage of ETFs is their cost-effectiveness compared to actively managed funds. However, costs can vary significantly among ETFs. The Total Expense Ratio (TER) is a useful metric for assessing the cost of an ETF, reflecting the annual fee for holding the fund. It includes administrative, legal, operational, and marketing expenses deducted from your returns.
The success of an ETF is influenced by its fund volume. Ideally, choose a fund with over $100 million in assets under management to ensure it is profitable enough to avoid liquidation.
When comparing ETFs, a solid track record is beneficial. For long-term investments, look for at least one year of performance data; three years is better, and five years is optimal. A longer history helps assess the risk of the ETF being shut down. Newly launched ETFs often have low volumes, which may indicate either their recent entry into the market or a lack of investor interest, potentially leading to their closure.
The goal of an ETF is to match its index’s returns. However, real-world factors such as transaction fees, taxes, and various operational costs affect ETFs, unlike theoretical indices.
To evaluate the tracking difference, compare ETFs that follow the same index over the same period using the ETF’s charting tools to assess their total returns over the longest possible timeframe.
Purchasing ETFs incurs order costs, which vary by broker. ETFs are typically traded on stock exchanges, and you must also consider the spread between buying and selling prices, influenced by the ETF’s liquidity.
Liquidity refers to how easily an ETF can be traded. More liquid ETFs allow quicker and cheaper transactions. Broad market ETFs generally have high liquidity due to the frequent trading of their underlying assets. For example, an ETF holding FTSE 100 stocks will be highly liquid because these stocks are commonly traded.
Ensure your ETFs are reporting funds to avoid unexpected tax liabilities. Non-reporting funds face higher income tax rates rather than the more favorable capital gains tax rates.
ETF screeners are tools that help investors search the entire ETF market based on specific criteria like cost ratios, market returns, sector, and company size. It’s essential to align these criteria with your investment objectives, financial goals, and risk tolerance. ETF screeners can be customized to suit both novice and experienced investors.
