How do you know if an ETF is good?
Investors can compare some similar ETFs based on their performance, tracking error versus
indices, total expense ratios, and measures of trading costs such as bid/offer spreads.
For new and unique ETFs, investors need to make more of a judgment call which could
include the asset managers’ previous track records of running similar strategies, possibly in
other sorts of vehicles such as mutual funds if the manager has not run ETFs before.
Assets are one way to judge if an ETF is good. The largest ETFs generally do have long track
records. However, some of the best performing ETFs in any year can be quite small ones,
focused on niche areas such as meme stocks, blockchain technology or artificial intelligence.
Additionally in some parts of the emerging markets, such as frontier markets in Africa, the
overall financial market size is quite small so the ETFs are not currently likely to match the
multi-billion dollar assets of a US equity ETF.
