Exchange traded funds (ETFs) are a horse of a different color. What might have worked when choosing stocks or mutual funds a few years back may not work as well when you're selecting among the 900-plus ETFs available today.
Most financial planners have their own method or strategy for picking ETFs for their clients' portfolios. It's becoming more crucial for planners and advisors to understand the need for picking the right fund for their clients as the number of ETFs available grows and new, complex products come to market, reports William Atkinson for Financial Planning. [ The Case for Wading Back Into ETFs. ]
Some advisors are becoming disenchanted with actively managed mutual funds, which have high expenses and which, as a group, have underperformed. Ten years ago, the average advisor had about 80% of client portfolios in strategic buy-and-hold positions. Today it's about 30%. Money is in transition and being actively managed. ETFs are an ideal tool for this, because they provide access to so many different asset classes, sectors and global regions and generally at a far lower cost. [ Build An ETF Portfolio for Free. ]
Using the utility sector as an example, we have a selection process when it comes to determining which ETFs would be the best fit.
Our ETF Analyzer identifies 14 ETFs that represent the utility market. Some are domestic only. Some are international. Some represent a combination (global). We examine trading volume, market cap, expenses and the underlying index. However, we also look at yield in certain cases. Expenses are important to consider, as well.
This selection process, combined with a trend following discipline , can help you choose ETFs that are right for you and make wading through all that information a little easier.
Tisha Guerrero contributed to this article.