Finding the best ETFs is an increasingly difficult task in a world with so many to choose from. How can you pick with so many choices available?

Don’t Trust ETF Labels

There are at least 36 different Financials ETFs and at least 177 ETFs across ten sectors. Do investors need 17+ choices on average per sector? How different can the ETFs be?

Those 36 Financials ETFs are very different. With anywhere from 23 to 402 holdings, many of these Financials ETFs have drastically different portfolios, creating drastically different investment implications.

The same is true for the ETFs in any other sector, as each offers a very different mix of good and bad stocks. Consumer Staples ETFs rank first for stock selection. Energy ETFs ranks last. Details on the Best & Worst ETFs in each sector are here.

Paralysis by Analysis

We think the large number of Financials (or any other) sector ETFs hurts investors more than it helps because too many options can be paralyzing. It is simply not possible for the majority of investors to properly assess the quality of so many ETFs. Analyzing ETFs, done with the proper diligence, is far more difficult than analyzing stocks because it means analyzing all the stocks within each ETF. As stated above, there can be as many as 402 stocks or more for one ETF.

Anyone focused on fulfilling the fiduciary duty of care recognizes that analyzing the holdings of an ETF is critical to finding the best ETF. Figure 1 shows our top-rated ETF for each sector.

Figure 1: The Best ETF in Each Sector

Sources: New Constructs, LLC and company filings

Amongst the ETFs in Figure 1, VanEck Vectors Mortgage REIT Income (MORT) ranks first overall, First Trust NASDAQ Technology Dividend Index (TDIV) ranks second, and Fidelity MSCI Consumer Staples Index (FSTA) ranks third. PowerShares Water Resources (PHO) ranks last.

How to Avoid “The Danger Within”

Why do you need to know the holdings of ETFs before you buy?

You need to be sure you do not buy an ETF that might blow up. Buying an ETF without analyzing its holdings is like buying a stock without analyzing its business and finances. No matter how cheap, if it holds bad stocks, the ETF’s performance will be bad. Don’t just take my word for it, see what Barron’s says on this matter.


Analyzing each holding within funds is no small task. Our Robo-Analyst technology enables us to perform this diligence with scale and provide the research needed to fulfill the fiduciary duty of care. More of the biggest names in the financial industry (see At BlackRock, Machines Are Rising Over Managers to Pick Stocks) are now embracing technology to leverage machines in the investment research process. Technology may be the only solution to the dual mandate for research: cut costs and fulfill the fiduciary duty of care. Investors, clients, advisors and analysts deserve the latest in technology to get the diligence required to make prudent investment decisions.

If Only Investors Could Find Funds Rated by Their Holdings

Our ETF ratings leverage our stock coverage. We rate ETFs based on the aggregated ratings of the stocks each ETF holds.

VanEck Vectors Mortgage REIT Income (MORT) is not only the top-rated Financials ETF, but is also the overall best sector ETF out of the 177 sector ETFs that we cover.

The worst ETF in Figure 1 is PowerShares Water Resources (PHO), which gets a Neutral rating. One would think ETF providers could do better for this sector.

This article originally published on May 3, 2017.

Disclosure: David Trainer, Kenneth James and Kyle Guske II receive no compensation to write about any specific stock, sector, or theme.

Follow us on Twitter, Facebook, LinkedIn, and StockTwits for real-time alerts on all our research.

Click here to download a PDF of this report.

Leave a Reply

Your email address will not be published.