Having trouble making sense of the ever-growing ETF marketplace? Asset management firm XTF has introduced a free rating service intended to help financial advisors to make educated decisions when choosing which ETFs to buy for clients. The service grades ETFs based on 16 criteria across two broad categories: investment metrics and structural integrity.
“The ETF market is growing so quickly that investors are fast becoming overwhelmed by the number of choices available,” says CEO Michael Woods. “Our goal is to help create a more educated ETF investor; one who understands what he or she is investing in and can make an intelligent choice for their portfolio and financial needs. This ratings service is an important step towards achieving that goal.”
One thing going for XTF is that it isn’t an ETF sponsor. This will give the company liberty to rate ETFs without a bias.
In order for an ETF to be included in the service, it has to trade for a minimum of six months and exhibit enough transparency so XTF can research fundamental factors like diversification, risk metrics and yield numbers — the same criteria that XTF uses in constructing its portfolios.
Here are a few of the criteria XTF is using to rate ETFs:
Tracking error: tracks at least daily performance data to indicate how well (or poorly) an ETF is matching its benchmark index.
Tax efficiency: shows the ETF’s success in maximizing tax efficiency, a hallmark of ETF investing.
Expense and Bid-Ask Ratios: provides an in-depth view of the costs associated with that ETF.