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286 ETFs for 258 Stocks?


Seriously?

286 Exchange Traded Funds (ETFs) now trade in Canada?

For only 258 stocks on the TSX? (Ok, there are Bonds & REIT too … but still).

And Blackrock‘s ‘ETF landscape’ report indicates there are now over 2,825 ETFs globally? (6,229 listings on 49 different exchanges).

So much for simplicity.

ETFs have arrived. The number of products and Assets under Management have grown … parabolic. While choice (and competition amongst providers) is good for the Individual Investor (and the Institutional Investor that might also use ETFs), parabolic growth has a downside … and it usually involves marketing, complexity and additional costs and risks.

See: “Investors can choose from asset class, region, currency, stock, bond, real estate or commodity, domestic or international, broad-based or sector specific, value or growth, large, mid or small cap and eco or religion sensitive ETFs. Some ETFs now have an embedded trailer payable to the Advisor …

There is a way to sort through the available ETFs and select the ‘right’ ETF for a portfolio.

Back to Basics.

Principles for ETF selection might include:

1. Select ETFs from the providers who have been around for a while.
2. Get the portfolio’s Asset Allocation right.
3. Be mindful of cost(s).

The next few Blog posts will explore this further.

Meanwhile, for reference, see earlier ETF selection posts:

July 4, 2011. How to select ETFs (1of4).
July 6, 2011. How to select ETFs (2of4).
July 8, 2011 How to select ETFs (3of4).
July 11, 2011 How to select ETFs (4of4) .

Also, for an analysis of some of the different types of ETFs to consider, see these Blog posts: January 2011 February 2011

 
Next time?
ETF selection criteria in theory and then in practice.
Doug Cronk CFA is Manager, Investments for a Canadian Pension Plan
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