Select Page

How to Choose an ETF

Curated by the Ticker Table Team

As ETFs have grown in popularity, so too has the number of funds on offer. Having so much choice can be a good thing for investors, but it can also make it more difficult to find the best ETF to buy.

So, how do figure out which ETF is right for your portfolio? In this guide, we’ll show you how to choose an ETF.

What is an ETF?

An ETF, or exchange traded fund, is a basket of securities or other assets similar to a mutual fund. Unlike mutual funds, ETFs are traded on stock exchanges just like the stocks of individual companies. So, the prices of ETFs change throughout the day and you can buy and sell them at any time during market hours.

Many ETFs are designed to contain all of the securities in a market index, like the S&P 500. However, they’re not just limited to investing in stocks. ETFs can hold derivatives like options contracts, futures, cryptocurrencies, and more.

ETFs

How to Choose an ETF

Choosing the best ETF to reach your investing goals requires a bit of work. Let’s take a closer look at a simple three-step process you can use to find the right fund.

Step 1: Choose Your Investment Theme

The first step in choosing an ETF is to decide what you want to invest in. ETFs cover a lot of ground – they can invest in a market index like the S&P 500 or NASDAQ 100, a specific market sector like tech or consumer goods, or a thematic area like AI or renewable energy. You can also use ETFs to short the market (these are called inverse ETFs), to invest in forex or commodities, or to invest in cryptocurrencies. 

Step 2: Create a List of Candidate ETFs

Once you have an investing focus in mind, the next step is to start searching for funds that offer exposure to the asset class or market you want. You can use tools like ETFdb.com, ETF.com, and Morningstar to develop a list of candidate ETFs.

Don’t worry too much about digging into these funds at this stage. The goal is simply to assemble a list of promising candidates that you can narrow down in the next step. 

Step 3: Research to Find the Best ETF

Now it’s time to research the ETFs you added to your list of candidates to find the one that’s best for you. There are a number of different factors to choose when comparing funds:

  • Expense ratio: The expense ratio is the annual management fee that an ETF charges. Lower expense ratios are better when comparing funds that are otherwise similar.
  • Performance: If you’re investing in a passive index-tracking ETF, its performance should match the growth of the underlying index. If you’re investing in an actively managed ETF that seeks to outperform the market, make sure the added performance justifies any added management fees.
  • Portfolio: Even ETFs that are targeting the same market sector or index can have varying portfolios. Look at the number of holdings, the relative weight of each holding, and the average market cap of the holdings. For actively managed funds, you might also want to research the average P/E ratio or price-to-book ratio of each fund’s holdings.
  • Daily volume: ETFs with high daily trading volumes typically offer more liquidity for you to enter and exit your position. High volume also helps to minimize discrepancies between an ETF’s value and the value of its underlying holdings. 
  • Assets under management: ETFs with a large value of assets under management – in the hundreds of billions of dollars – are highly popular. However, as the size of a fund rises, its ability to buy and sell shares without moving the market decreases. So, it’s worth looking for funds that are in the middle of the pack when it comes to size.
  • Trustworthiness: Many ETFs are offered by investment firms like BlackRock and Vanguard that are highly trustworthy. But there are also a large number of ETFs that are offered by smaller and less well-known firms. Make sure an offering firm is worthy of your trust before investing in one of its ETFs.
ETF Research

Example: Finding the Best Total Market ETF

To give you an example of how to research and compare ETFs, let’s take a look at a list of 4 total market ETF candidates. We found these candidates and the following information using ETF.com’s screener tool.

Fund NameTicker SymbolExpense RatioAverage SpreadNumber of Holdings5-year PerformanceAverage Daily $ VolumeAssets Under Management
Vanguard Total Stock Market ETFVTI0.03%0.01%3,42516.71%$891.7 million$213.8 billion
iShares Core S&P Total U.S. Stock Market ETFITOT0.03%0.01%3,45616.64%$148.6 million$34.6 billion
Schwab U.S. Broad Market ETFSCHB0.03%0.04%2,45116.61%$58.3 million$18.8 billion
Vident Core U.S. Equity FundVUSE0.48%0.025%22211.58%$807,000$399.9 million

In this case, the Vanguard, iShares, and Schwab ETFs are very similar in price and performance, while the Vident ETF clearly lags in these categories. The iShares and Schwab funds are significantly smaller than the Vanguard fund and may have more room to maneuver, although this isn’t typically a big issue for passively managed funds.

One thing to note is that the average spread of the Schwab ETF is slightly higher than for the Vanguard and iShares funds, so it can cost more to enter and exit your position. So, you may want to choose between the Vanguard and iShares ETFs in this case.

Conclusion

ETFs offer a convenient and low-cost solution for investing in whole market indices or sectors, as well as asset classes other than stocks. However, with so many ETFs to choose from, you’ll need to do some research to decide which fund is right for your investing situation. Decide what you want to invest in, establish a list of candidate ETFs, and then compare them directly to narrow down your selection to the best ETF for you.

The Best Stocks for 2021

Our team has analyzed thousands of stocks in hundreds of sectors. Looking for stocks with massive growth potential? Check out the top stock picks for 2021.

Top Stock Lists

Best Stocks Under $1

Looking for the best stocks under $1? You came to the right place. Stocks that are priced at under $1 per share are often considered to be penny stocks. Stocks valued at under $1 usually belong to new and small companies, including startups. These companies and stocks...

Best High Short Interest Stocks

The total number of shares sold short without being covered, of a particular stock, is called the short interest of that stock. The short interest is represented as a percentage. Thus, stocks with a high percentage (usually over 20%) of short interest are termed as...

Best Coal Stocks

Stocks of companies involved in the mining of coal are known as coal stocks. A large number of companies across the globe extract coal from the earth, which is used to generate electricity. Despite the awareness about global warming and greenhouse gas emissions and...

Best FinTech Stocks

Stocks of fintech companies that implement digital technology to the financial world are known as fintech stocks. Fintech companies apply the advancement in technology to payment systems, e-commerce, cryptocurrencies, money transfers, personal finance, lending, and...

Best Transport Stocks

Stocks of companies that facilitate transportation are collectively known as transport stocks. They include stocks of railroad companies, railway operators, airlines, electric cars, freight carriers, transportation manufacturers, and logistics providers....

Best Telecom Stocks

Stocks of the companies involved in telecommunications constitute telecom stocks. They include stocks of companies that enable telecommunications on a global level, either through the phone or the Internet, wired or wirelessly. With the rapidly evolving telecom space,...

Best Infrastructure Stocks

Stocks of companies that build and maintain the infrastructure of a country, including communications, water, transportation, electricity, and buildings, are collectively termed as infrastructure stocks. It is a broad category of stocks consisting of building bridges,...

Best Index Stocks

Stocks of the mutual funds and ETFs that track and follow the performance of a stock market index are termed as index stocks. Index stocks provide diversification to the investment portfolio by spreading out investments across different asset classes. They also manage...

Best Electric Car Stocks

Electric car stocks are stocks of the manufacturers of electric vehicles. The sales of electric cars started in 2013 and have demonstrated a steady rally in the past few years. The sales of battery-powered cars will not overpower traditional combustion engine cars...

Best Microchip Stocks

The stocks of companies involved in the design and fabrication of integrated circuits or microchips are termed as microchip stocks. With technology so prevalent in our lives, microchips are increasingly used to program logic and for computer memory to be used in...

Best Clean Energy Stocks

Clean energy stocks are stocks of companies that generate and supply energy through renewable and clean resources. The clean energy industry and stocks have seen an uplift in recent years with worldwide initiatives towards clean and alternative sources of energy. The...

Best Agriculture Stocks

Agriculture stocks are stocks of companies involved in agriculture and food-related businesses. The agriculture industry has been around for more than 14,000 years and is here to stay. Despite the economic conditions of the world, the performance of agriculture stocks...

Best Penny Stocks

Penny stocks are the stocks that, by definition, trade at less than $5 per share. They belong to small-cap public companies, are illiquid, and are traded on the over-the-counter exchanges and not the regular stock exchanges. Penny stocks are highly speculative in...

Best Stocks Under $50

Stocks that trade at under $50 per share are termed as stocks under $50. In most cases, stocks under $50 belong to large, well-established companies and are available at a good discount. Thus, stocks under $50 offer excellent opportunities for investors to enter the...

Best Gun Stocks

Gun stocks are stocks of companies that manufacture and sell firearms and ammunition, including guns and pistols. There are not many publicly-listed gun stocks in the US. Only two manufacturers of firearms are listed on the US stock exchange, while a few other gun...

Best Foreign Stocks

Stocks of companies located in a foreign land are called foreign stocks. With the rapid advancement in technology, investing in foreign stocks and securities has become a lot easier. An investor in the US can invest in stocks of companies in Zambia, India, or China...

Best Canadian Stocks

Stocks of companies based in Canada are termed as Canadian stocks. A wide variety of Canadian stocks trade on the US stock exchanges and they belong to a variety of sectors, and industries. After the legalization of cannabis in Canada in 2018, stocks of cannabis...

Best Railroad Stocks

Stocks of companies that are involved in the transport of industrial and commercial goods through the rail route are termed as railroad stocks. Railroad industry forms an integral part of the US economy; hence railroad stocks provide investors with the opportunity to...

Best International Stocks

Stocks of companies based in countries other than the home country of investors are called international stocks. There are many foreign stocks, from Canadian stocks to Indian stocks, and many of these trade on the US stock exchanges. They are registered in the US and...

Best Insurance Stocks

Insurance stocks are stocks of the insurance companies that deal in life insurance, property or casualty insurance, accident and health insurance, surety and title insurance, and insurance brokers. Insurance stocks have experienced a sudden rally and outperformed the...

Top ETF Lists

Best Performing ETFs

ETFs are the pools of money that invest in a variety of stocks, commodities, or a combination of assets. They follow the performance of benchmark indices like the S&P 500 and are traded on the leading exchanges. ETFs are effective modes of investment for investors...

Best Financial ETFs

Financial ETFs are the exchange-traded funds that invest in the stock of financial services companies. These companies include banks, insurance companies, mortgage companies, investment banks, brokerage firms, and companies that provide consumer credit. The...

Best Water ETFs

Water ETFs are the exchange-traded funds that invest in water stocks or stocks of companies involved in the water industry. This includes companies that perform water purification processes, bottle the purified water, and other related products. Water ETFs provide...

Best Semiconductor ETFs

Semiconductor ETFs are the exchange-traded funds that invest in companies that manufacture semiconductors. It includes the companies that directly make semiconductors as well as the ones that supply goods to these semiconductors manufacturers. The semiconductors...

Best High Yield ETFs

There are many types of ETFs, from financial ETFs to energy ETFs, so what sets apart high yield ETFs? High yield ETFs are the exchange-traded funds that invest either in stocks of companies that pay high dividends or in bonds of companies that pay high interest. The...

Best Gold ETFs

Gold ETFs are the exchange-traded funds that invest in gold and gold derivative contracts backed by gold. Investors do not get physical ownership of gold by investing in or redeeming gold ETFs; instead, they only get access to the cash equivalent of the transaction....

Best European ETFs

The exchange-traded funds that invest in the stocks of Europe-based companies are termed as European ETFs. These ETFs not only allow investors to broaden their exposure and geographical diversification, but they also help investors to aim at specific industries or...

Best Energy ETFs

The exchange-traded funds that invest in the securities of energy companies, including natural gas, oil, and alternative energy companies like those for electric cars. The exposure also consists of securities of the companies that produce and transport energy...

Best Defense ETFs

Defense ETFs track the performance of equities of companies in the aerospace and defense sector. These companies include the ones involved in the manufacturing, distribution, and transportation of aircraft and their parts, radar equipment, military aircraft, and other...

Best Blockchain ETFs

Blockchain ETFs are the exchange-traded funds that either track the price movement of bitcoin and other cryptocurrencies or invest in stocks of companies that use the blockchain technology to transform business applications. With the technological advancement and...

Best 3X ETFs

There are many types of ETFs out there. They range from financial ETFs to high yield ETFs, and then there are 3X ETFs. 3X ETFs are the triple leveraged ETFs. These ETFs are designed to amplify the returns of the benchmark indices by three times by using financial...

Best Oil ETFs

There is such a large variety of ETFs that you can invest in. There's financial ETFs and Energy ETFs to name just a few, and then there are Oil ETFs. Oil ETFs are the exchange-traded funds that invest in the stocks of oil companies. They are simple and effective...

Best Biotech ETFs

The exchange-traded funds that invest in the stocks of biotechnology companies are known as biotech ETFs. Biotech companies are mainly involved in revolutionary processes in the healthcare industry, including genetic engineering, molecular biology, and recombinant DNA...

Best Tech ETFs

Technology ETFs are the exchange-traded funds that hold assets including the technology stocks.  Some tech ETFs own all the stocks that are related to technology, while others have a niche focus by buying only semiconductor stocks or only cybersecurity stocks....

Best Small-Cap ETFs

Small-cap ETFs are the exchange-traded funds that invest in the stocks of companies with a market capitalization between $250 million and $3 billion. The portfolio is diversified with small-cap companies and stocks belonging to different sectors and separate...

Best Healthcare ETFs

Healthcare ETFs are the exchange-traded funds that invest in the stocks of healthcare companies. Healthcare is the second largest sector among the S&P 500 index and is an excellent avenue for investments. By investing in healthcare ETFs, investors get to invest in...

Best Fidelity ETFs

Fidelity, the market leader in investment planning and financial services, offers a wide array of 28 ETFs for investors to choose from. The exchange-traded funds of Fidelity help investors create a diversified portfolio of investments by catering to different factors,...

Best Dividend ETFs

A dividend is defined as a distribution of reward from the company's earnings to its shareholders. Investing in dividends is one of the slower and more patient approaches one may take when considering their investments. This type of investing belongs mostly to a more...

Best China ETFs

The exchange-traded funds that invest in the stocks of China-based companies constitute China ETFs. These funds include both index funds and funds specific to categories and sectors. China ETFs have become new avenues of investments in the past few years as China has...

Best Vanguard ETFs

Vanguard is the second-largest U.S. exchange-traded fund (ETF) sponsor by assets. In general, Vanguard is widely regarded as one of the most popular ETF-issuers in the world. According to estimates, Vanguard has around $5.3 trillion worth of assets under its...