U.S. Markets closed

Your core portfolio: How to choose the right ETFs

Daniel Gamba of BlackRock

Your core portfolio: How to choose the right ETFs (Part 1 of 2)

The U.S. ETF landscape continues to grow, investors have a vast selection of products to choose from, but not all ETFs are created equal. Daniel Gamba provides a checklist for how to select an ETF for the core of your portfolio.

In my post on   ETFs in the Core   in May,   I mentioned that the goal of most investors is to manage risk, seek income, and achieve long-term growth. These goals, of course, need to be built on a solid foundation: the “core” of a portfolio. The idea of the core is to establish the right mix of exposures and investments, at an attractive price point, that seek to drive value over the long term.

With over 5,000 ETFs to choose from, building your core with ETFs does require a framework. Institutional investors have extensive due diligence processes for selecting investment products and in many cases, a whole staff to do the work. Based on my extensive work with institutions I propose using a simplified approach when selecting ETFs for the core of your portfolio.  Here are the five key questions you should be asking:

  • Provider
  • Exposure
  • Structure
  • Liquidity
  • Costs

Market Realist – The number of ETF managers increased tenfold in just the decade ended in 2010. While there’s a core group of large ETF managers, every year, more ETF offerings hit the market to compete for prospective investors’ attention. The ETF industry is approaching the $2 trillion mark in assets under management. Approximately 70% of assets are in the U.S. ETF market, which is projected grow at ~15% per year, according to Ernst & Young. Given the increasing number of ETF choices available to investors, it’s important to learn to discern between the options.

Keep reading to Part 2 of this series to learn the details about each of these points. For a comparison of bond ETFs, see  Head-to-head: A comparative analysis of bond ETFs .

Continue to Part 2

Browse this series on Market Realist: