Why are there so many ETFs? The answer is: because ETF providers are making lots of money selling them. The number of ETFs has little to do with serving investors’ best interests. Here are three red flags investors can use to avoid the worst ETFs…
Our research with ETFs is very unique because we’re actually basing our ETF ratings on the stocks that the ETF holds.
MSFT gets my best rating because the company’s ROIC, at 72%, ranks 8th in the S&P 500 while its stock price (~$31.52/share) implies the company’s profits will permanently decline by about 20%. High profitability and low valuation create excellent risk/reward in a stock. Here is my free report on MSFT.
From the start, avoid any ETFs below a $100 million market cap. Anything smaller puts you at risk of inadequate liquidity, too large a bid/ask spread and tracking error. Even $100 million can be too low. The bigger the market cap the less trading risk. There are plenty of free services that allow you to screen out the smaller ETFs and minimize your trading risk.
The focus of this article, however, is investing risk or the relative investment potential of the ETF.
First, you need to determine the category or sector to which you want exposure.
Then, you determine which ETFs, within the category or sector you like, are the best …this can be the hard part.
My ratings on ETFs are unique because they are based on my stock ratings for each of a fund’s holdings.
Analyzing and rating an ETF based on its holdings delivers many interesting insights:
QUESTION: Why should fund investors rely on backward-looking NAV trends?
ANSWER: They should not.
Retail HOLDRS (RTH) is our top pick for consumer discretionary sector ETFs. RTH is one of 51 ETFs that gets an attractive-or-better rating. We rate the investment merit of the top six consumer discretionary sector ETFs based on our coverage of 471 stocks in this sector. Per our first-quarter-2011 review of U.S. Equity Sector ETFs,…
Select Sector SPDR-Consumer Staples (XLP) is our top pick for consumer staples sector ETFs. XLP is one of four ETFs, out of the 270 we currently cover, to get our very attractive rating. We also rate the investment merit of the top five consumer staple sector ETFs.
We recommend investors avoid all energy sector ETFs. We found no ETFs in the sector that offer investors attractive investment merit and acceptable structural integrity. We also rate the investment merit of the top-9 energy sector ETFs.
Broadband HOLDRS (BDH) is our top pick for telecom sector ETFs. We also rate the investment merit of the top-3 telecom sector ETFs. Per our first-quarter-2011 review of U.S. Equity Sector ETFs, the telecom sector is one of five sectors that gets our “neutral” rating. Figure 2 shows how the telecom sector’s stocks and the…
We recommend investors avoid all materials sector ETFs. We found no ETFs in the materials sector that offer investors attractive investment merit and acceptable structural integrity. We rate the investment merit of the top-6 materials sector ETFs.
We recommend investors avoid all utility sector ETFs. We found no ETFs in the utility sector that offer investors attractive investment merit and acceptable structural integrity. We rate the investment merit of the top-5 utility sector ETFs.