Investors Struggle to Choose the Right ETF

The stunning growth of exchange-traded funds gives investors wide access to assets classes and investing strategies, but many investors are daunted by deciding which one to buy.

Fifty-three percent of investors in a new study by E-Trade Financial cited choosing the right ETF as their biggest challenge.

Selection will not get easier, as more than 100 new funds come to market every year.

“With more choices than ever before, it’s no surprise that investors can experience selection fatigue,” Rich Messina, E-Trade’s senior vice president of investment products, said in a statement.

That is not investors’ only concern. As providers bring harder-to-understand strategies to market, 41% of investors in the study worried that their fund would not perform as expected because its strategy was more complex than it appeared.

And 35% fretted about the possibility of an unwanted surprise if their ETF’s returns lagged that of the specific index it was designed to mirror.

“Before investing in any ETF, investors are wise to research the underlying positions of the ETF, the bid-ask spread, and the market capitalization, which can go a long way in helping to reduce concerns,” Messina said.

E-Trade’s ETF Screener allows investors to evaluate and compare just about every ETF on the market, according to the statement. It sorts by rating, category, characteristics and commission-free status.

Although complex strategies can stump prospective investors, some observers see innovative investment strategies as a chief attribute of the ETF industry.